Poundland slumping despite successful expansion

Shares in Poundland are slipping as the sales growth rate is sliding and the acquisition of 99p Stores will not be as beneficial as initially thought. 

A Poundland branch
Source: Bloomberg

Poundland will announce its first-half results on 19 November, and dealers are anticipating revenue of £554 million and adjusted net income of £7 million. In the second-half of last year the company posted revenue of £588 million and adjusted net income of £24.33 million. The company will reveal its full-year results in June 2016, and traders are expecting revenue of £1.29 billion and adjusted net income of £35.57 million. These forecasts represent a 16% rise in revenue and a 4.7% increase in adjusted net income.

Poundland has warned that its takeover of 99p Stores will not be as fruitful as initially thought because the company’s performance has slipped slightly since the move was announced. The acquisition will provide synergies and the firm will review its spending plans when the transaction is completed.

Poundland’s own expansion is progressing nicely, and it is aiming to open 70 stores between the UK and Ireland by the end of the year. The discount retailer is still making headway into continental Europe, and it hopes to have its tenth store in Spain open by December.

The company stated its profits would be stacked towards the second half of the year as the negative impact of the euro and the ‘subdued’ start to this financial year pushed the share price lower. Sales at the deep discount retailer are still rising but they are expanding at a slower rate, and this has traders concerned that the price war between the major UK supermarkets may eat into Poundland’s profits.

Equity analysts are bullish on Poundland, and out of the 12 ratings, seven are buys, and five are holds. The average target price is 357p, which is 27% above the current price.

Since late September we have seen two attempts by Poundland to break away from the 270p support level. The first ended at 300p, the bottom end of the gap down from late September, and the price then drifted lower. Having returned to this base at the end of October the shares have attempted to rally once more. The price has been able to push through resistance at 283p, and now it needs to clear the 50-day simple moving average (SMA) at 291p before moving on to test 300p. If the rally falters then we look to 276p as support before a possible return to the recent lows around 270p, with a break through here putting the shares in fresh ‘all-time low’ territory. Definitive bullish momentum needs the price back above 305p. 

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