Stock of the day 13/11/2015 – Poundland Group PLC

Can Poundland escape the bargain bin when it posts its interim half year results next Thursday?

The stock may be (relatively) embryonic but it certainly has packed a lot of drama into its short life-span. After some rollercoaster moves in 2014 Poundland began the New Year at £3.23, continuing to rise to £3.56 by the start of February. News that the company would be buying main high street rival 99p Stores for £55 million then sent the stock stratospheric, jumping 17% in 3 days to hit an all-time (admittedly less impressive for a stock as young as Poundland) high of £4.20.

As investors cooled their initial enthusiasm the stock then traded between £3.80 and £4 for the rest of February and the majority of March, until the announcement of a full scale investigation into the proposed 99p Store takeover did some serious damage to Poundland’s price, falling 27% to £2.94 by the start of June.


(Source: IT-Finance.com 13/11/2015)

However, despite a warning in mid-June that the first half of its financial year would be ‘relatively subdued’, with sales growth dropping to 4.1% for its fiscal first quarter against 7.1% year-on-year, investors were reassured by Poundland’s 19% rise in full year pre-tax profit to £43.7 million alongside an 11.9% increase in revenue to £1.12 billion, putting the stock back on a track to rise to £3.63 by mid-August.

News the CMA had given Poundland the provisional go-ahead to purchase 99p Stores got lost in the post-Black Monday chaos and, despite confirmation on the 18th September that the company had final clearance to take over its rival the stock had fallen to £3.10 by September 23rd. Things got even worse from that point onwards; a £50 million share sale to fund its 99p Stores acquisition didn’t go down well with investors, especially since Poundland admitted its rival wasn’t in as good health as when it first starting the long purchase process AND warned its half year pre-tax profits would be lower than in H1.

This cavalcade of bad news pushed Poundland 13% lower in a single day, culminating in an all-time low of £2.69 by the end of September. And despite tickling £3 in the middle of October, Poundland soon fell back to a current trading price of £2.72 (IT-Finance.com) ahead of next week’s results.

In terms of that aforementioned half year report, investors will be looking for reassurance from Poundland that its purchase of 99p Stores was a wise move. One imagine they will also be curious about the company’s guidance going forwards given that it has already warned of a weaker H2.

Poundland Group has a consensus rating of ‘Hold’ with an average target price of £3.58.