High-street favourite to float

Last Tuesday was one of the busiest days for stock-market flotations since the credit bubble. Companies lined up to announce initial public offerings (IPOs) worth over $10bn.

European markets accounted for the lion’s share of new IPOs, reflecting gradually growing confidence in the European economy among companies and their private-equity backers, who are also encouraged by stock markets’ recent buoyancy.

British mobile games maker King, behind the popular game Candy Crush Saga, is to float in New York. Danish cleaning company ISS and Pets at Home are other eye-catching names coming to market. Warburg Pincus, which bought Poundland for £200m three years ago, is now bringing it to market for about £700m.

What the commentators said

Poundland is “a well-run company and a promising investment if the price is right”, said Jonathan Guthrie in the Financial Times. It has been growing sales and underlying earnings by a respective 17% and 21% and plans to double UK store numbers to 1,000.

Like the other discounters, the company has benefited from middle-class consumers increasingly opting for budget stores. Poundland is all “about the cost culture consumer”, said Hargreaves Lansdown’s Richard Hunter. “Right place. Right time.” But will consumers still be so bargain-conscious once real incomes start to rise this year?

Even if they are, said The Daily Telegraph, “the major supermarkets are unlikely to sit idly by and watch discounters take their customers”. The real challenge for Poundland may be “maintaining its gimmicky premise”, said James Moore in The Independent.

There will come a time when £1 “won’t buy a penny chew” and no matter how cleverly the firm manages its costs, it will have to “change tack”.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.