Stock of the day 26/11/2014 – Poundland

Since the collapse of traditional high street stores like Woolworths, bargain stores like Poundland have slowly consumed towns and cities until they are the one of the most frequent brick-and-mortar brands. 2014 has been Poundland’s first year of public trading, and Thursday sees a new set of interim results for the company.

March this year saw Poundland leapfrog its IPO floatation price of 300p to open its first day of trading at 356.5p, closing even higher at 369.6p. This saw the company’s initial market value of £750 million increase to around £900 million after its debut. Following the initial excitement surrounding the stock, Poundland saw a six week decline between April and mid-May and since then has not been able to re-capture the verve these opening days saw. By 20th May, the shares reached a low of 285.5p, a far cry from its 2014 high of 401.25p on March 12th, its opening day of trading. This fall was almost immediately greeted with an upward swing, growing nearly 9% the day after its 2014 low, continuing until it reached 365, its highest point since the fortnight after its IPO.

Since then, another decline, stalled by strong figures in July, has given way to an unadventurous second half of 2014. The earnings release in July, which saw a 4% jump in prices to 340.2p, revealed that underlying pre-tax profits grew by 23.5% to £36.8 million from healthy revenue of £997.8 million. Despite this good news, prices soon stagnated, largely remaining stable between 310p and 320p, bar a brief rise between September 18th and 22nd, where prices spiked to a peak of 342.5p and a brief fall in early October where prices fell to 295.3p. Both of these price-shifts swiftly gave way to the meek trend that has epitomised much of Poundland’s first year of trading.

This leads to the interim results on Thursday. Traders have been bearish in regards to the stock since the opening of the week, with prices falling from a high of 319.45p on Monday to open at 312.25p on Wednesday. These minor rises and falls have been par for the course for Poundland this year, but the timing of this decline may indicate the market’s reaction to Thursday’s announcement. There has been mixed advice from analysts with regards to Poundland shares; Jefferies’ forecaster Caroline Gulliver argued that the stock looked to ‘underperform’, and set a target of 260p due to her fears over the difficulty of its expansion to 1000 stores. However, Credit Suisse last week advised to buy the stock, and set a target price of 400p.

Poundland does look set to have a strong Christmas period as it becomes a viable option to other, more traditional, stores, with an increase in the quality of its items. This includes merchandise from the hit film Frozen, which has caused in-store fights as parents desperately tried to get items related to the frosty-favourite. News like this hints at a robust Christmas period for the bargain outlet; whether this is reflected in the interim announcement tomorrow remains to be seen.