Poundland doing sterling work

Poundland will announce its interim results on Thursday 27 November, and the market has high hopes.

Poundland shop
Source: Bloomberg

Poundland floated on the stock market in March, and it has been a good start to the company’s listed life even if it hasn’t been reflected in the share price. In July, the retailer posted a 13% rise in revenue and pre-tax profits dropped nearly 20% to £21.5 million. While that included floatation costs of £10 million, when the listing expenses were stripped out underlying pre-tax profits rose by 23.5% to £36.8 million.

The chain store opened 70 new shops at home this year, bringing its total in the UK to 528 stores. The CEO, Jim McCarthy, has hinted that as many as 1400 outlets could be opened, but also stated the company uses 1000 shops as an in-house target as it is a ‘round number’. Expansion is on the horizon at home and abroad, as there are 60 new shops in the pipeline for the UK next year. A store was opened in Spain recently and the aim is to have ten more opened by 2016. The maiden Spanish store is in the holiday resort of Torremolinos, an excellent choice of location as it a 'home away from home' for so many British citizens.

As important as high-street presence is, Poundland hopes to have its online division up and running by Christmas. It is crucial that this commitment is met as the nature of the wider retail sector suggests that e-commerce is eating into the traditional business.

Poundland offers cheap, cheerful snacks and confectionery which prove popular at Halloween and Christmas, but its stock of well-known brands like Thornton’s and Heinz is attracting middle income earners who now account for 20% of its customer base. Equity analysts are not as bullish as one would have though on the discount retailer. Out of the 10 recommendations, five are buys, two are holds and three are sells, with the average target price of 330p.

In July, the retailer revealed its full-year figures. Revenue was £997 million and adjusted net income was £27.25 million, both figures exceeing analysts’ estimates. The forecast for revenue and adjusted net income was £988 million and £26.9 million respectively.

Poundland’s next full-year figures are not due out until July 2015, and the consensus is for revenue of £1.13 billion and adjusted net income of £33 million. These forecasts represent a 13% and 22% increase on last year’s numbers. The share price has been trading within a tight range of 310p-320p recently. If the share price breaks to the downside, the next level of support is likely to come in at 300p. A move to the upside is likely to target the September high of 342p and then traders will look to 350p.

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