* Shares trading up 7.8 pct in conditional dealings
* B&M chaired by ex-Tesco CEO
* Share price values company at 2.9 billion pounds
* Price gives company PE multiple of 27, more than double Tesco's (Adds P/E multiples)
By Paul Sandle
LONDON, June 12 (Reuters) - Shares in Britain's B&M European Value Retail, chaired by former Tesco chief executive Terry Leahy, rose nearly 8 percent on their market debut, showing that investors remain enthusiastic about the discount sector of the retail industry.
Fast-growing B&M has around 370 stores selling products ranging from bedding to barbecues. Leahy, who left Britain's biggest supermarket chain in 2011, joined B&M in 2012.
B&M sold about 40 percent of its shares to institutions at a price of 270p each. They traded at 291 pence at 1205 GMT.
That values the firm at 2.9 billion pounds ($4.87 billion), 2 billion pounds above its main discount rival Poundland whose shares were listed in March. It also puts the company within striking distance of the FTSE 100 index, with the smallest constituents valued at 3 billion pounds.
Discount retailers, both in general mechandise and food, are taking sales from Britain's "big four" supermarkets, including Tesco, which became the undisputed leader of the sector under the charge of Leahy.
B&M, based in Liverpool in north west England, reported adjusted core earnings of 130 million pounds in the year to end-March, up 24 percent, on sales of 1.27 billion pounds.
B&M's share price gives the retailer a forward price-earnings multiple of 27.6, based on analysts forecasts that the company could make a net profit of 105 million pounds in the year ending March 2015. That puts it ahead of Poundland's valuation of 25.6 times expected earnings, according to Thomson Reuters data.
A costly exit from the U.S. and loss of market share has left Tesco trading on a multiple of 12.4 times its prospective earnings. The stock has fallen some 27 percent since Leahy quit.
B&M's Chief Executive Simon Arora aims to expand the chain at a rate of around 40 new shops a year. He has said two-thirds of the British population do not have easy access to B&M, and there is room for around 850 stores across the UK.
"We are delighted that investors have demonstrated their support for B&M and its growth story in the value sector and that they share our excitement about the Group's future," he said on Thursday.
B&M said selling shareholders, the Arora family and U.S. private equity firm Clayton, Dubilier & Rice, will receive 1.01 billion pounds of gross proceeds from the sale, assuming no exercise of an over-allotment option.
Poundland, which sells all items for one pound rather than B&M's range of prices, also saw its shares jump on its market debut in March. While they have lost some of the initial surge, they remain 44 pence above the float price of 300 pence.
Industry analyst Nick Bubb said Poundland had better brand recognition, but B&M had better like-for-like sales growth, perhaps reflective of its "multi-price" business model.
Proceeds from London IPOs have more than trebled this year to $8.8 billion across 33 listings, according to Thomson Reuters data.
Other retail offers have fared less well since listing. Pets at Home, which floated at 245 pence in March, trades at 219 pence today. The group reported a 12 percent rise in annual earnings to 110.7 million pounds earlier on Thursday.
Shares in online fashion retailer boohoo.com, which posted a 24 percent jump in first quarter revenue, are trading at 49 pence, just below its 50 pence listing price in March.
Online appliance retailer AO World is also losing ground, with its shares valued at 266 pence against a 285 pence listing price.
BofA Merrill Lynch and Goldman Sachs were joint sponsors and bookrunners for B&M, while Credit Suisse and Deutsche Bank were also joint bookrunners. Lazard was an adviser on the IPO.
($1 = 0.5956 British Pounds) (Editing by James Davey and Elaine Hardcastle)