Stock of the day 06/01/2016 – Poundland Group PLC

With the stock worryingly close to being worth the same amount as its produce, can Poundland kick off 2016 on a positive note when the company reveals its Q3 21015 trading statement on Thursday?

Things had begun to look up for the discount retailer by the middle of August; whilst the stock wasn’t that near to its all-time £4.20 high (hit in the aftermath of its 99p Store acquisition announcement), it had lifted away from the CMA-investigation-inspired 13 months lows (of £2.91) struck at the start of June to reach £3.69.

Yet the market chaos that was just around the corner soon put Poundland back on a downward path, something that was seemingly exacerbated by the company winning final approval to buy 99p Stores, and by September 23rd the stock was lurking just above the £3 threshold. The placing of £50 million new shares to fund the 99p Store purchase (a purchase that increasingly seems like more trouble that it was worth) then sent the stock firmly below the £3 mark, as the company not only warned that first half pre-tax profit would be lower than the £12.6 million seen in 2014/15, but also that ‘99p Stores’ financial position [had] weakened somewhat since [Poundland’s] original due diligence’.


(Source: IT-Finance.com 06/01/2016)

Despite this news by the middle of October Poundland had begun to recover, tickling the £3 level it had abandoned at the end of September. However, the stock soon resumed its decline, and by the middle of November was hovering around the £2.80.

Things then got far, far worse when Poundland revealed its first half figures; pre-tax profits plunged 43.1% year-on-year to £5.3 million with like-for-like sales slumping by 2.8%. Whilst CEO Jim McCarthy tried to play the results down, stating that they weren’t ‘a major problem’ and that the company was ‘were [it] expected to be’ investors were far from convinced, sending the stock nearly 20% lower to £2.24.

The decline didn’t end there, and whilst the stock bounced away from its £2.02 2015 low at the start of December, reports of a tough Christmas period for the retail sector began to drag it back into the much as the holiday period progressed, leaving the stock at current trading price, and all-time nadir, of £1.95 (IT-Finance.com, 06/01/2016).

So, Poundland faces an uphill battle with its third quarter statement on Thursday, one that has to reassure investors that the discount retailer is back on track AND that 99p Stores has been sensible, and not profit-sucking, purchase. Yet with a consensus rating of ‘Buy’ and an average target price of £3.17, Poundland may well be primed for a comeback.