A vital Christmas
Poundland's (L:PLND) 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.
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