Poundland — Update 11 December 2015

Poundland — Update 11 December 2015

Poundland

Analyst avatar placeholder

Written by

David Stoddart

Poundland

A vital Christmas

Consumer

QuickView

11 December 2015

Price

219.0p

Market cap

£588m

Share price graph

Share details

Code

PLND

Listing

LSE

Shares in issue

268.7m

Business description

Poundland is the largest single-price value general merchandise retailer in Europe. It operates almost 900 stores across the UK and Ireland, with a further 10 Dealz stores opened in Spain as part of a trial. Poundland acquired 99p Stores in September 2015.

Bull

Strong management track record.

Substantial potential in integration of 99p Stores acquisition.

Highly cash-generative.

Bear

Trading in early Q3, the critical quarter, reported as highly volatile.

The low-item-value format faces challenges in developing an online presence.

99p Stores was in a worse condition at the time of acquisition following delay due to the CMA review.

Analysts

David Stoddart

+44 (0)20 3681 2501

Paul Hickman

+44 (0)20 3077 5700

Poundland’s share price plunged following the release of its interims on 19 November. Two comments explain the decline: the announcement that 99p Stores was in a worse condition than expected on its acquisition and news that early Q316 trading was volatile. The latter is potentially significant and places even more emphasis than usual on Christmas trading.

Interim results

H1 progress was broadly as expected. However, the release contained two negative items. Firstly, the time taken in the CMA’s review of Poundland’s acquisition of rival 99p Stores led to the latter being in worse shape than originally expected. Specifically, it was short of inventory following the withdrawal of credit insurance. As a result, 99p Stores will lose £6-8m in H216. Secondly, Poundland acknowledged that Q3 trading to date has been highly volatile.

99p Stores – in for a penny in for a pound

Poundland has acquired 99p Stores for c £55m. After conversion and integration costs and H2 losses, the total cost will be c £100m. Management estimates that the return will be incremental EBITDA of at least £25m. We believe Poundland will deliver its integration plan. CEO Jim McCarthy built T&S Stores through a series of successful acquisitions and the 99p Stores integration does not appear unusually difficult. We therefore expect the acquisition to be value-accretive.

The pace of structural change

The structural shift from store-based to online retailing seems set to continue, but at what pace? The Q3 volatility that Poundland and others have reported and the lacklustre retail sales statistics for November could indicate a faster pace than expected. Conversely, they might simply reflect different weather or levels of promotion versus last year. More recently there is anecdotal evidence of reluctance to travel to shopping centres following the Paris terrorist attacks. Separating the long- from short-term influences is important. Poundland’s low item prices are not best suited to an online model. The Q3 trading report will be critical.

Valuation: Hinges on FY17e

FY16 estimates could vary depending on treatment of the 99p Stores H2 loss. Hence we look to FY17 numbers, on which basis the valuation looks less demanding. However, that seems unlikely to entice many before the Q3 update and possible reassurance on trading.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

997.8

21.5

10.9

0.0

20.1

N/A

03/15

1,116.9

36.2

13.6

4.5

16.1

2.1

03/16e

1,338.2

33.0

11.2

4.6

19.6

2.1

03/17e

1,651.2

53.0

16.4

5.9

13.4

2.7

Source: Bloomberg

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2015 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2015]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Entertainment One — Update 11 December 2015

Entertainment One

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free