OUTLOOK: Poundland's gimmick may inflate away its value


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The Independent Online

Outlook Talking of selling off minority stakes, some estimates suggest that discount retailer Poundland could be worth £750m when it joins the market by selling one.

Some 25 per cent of the business is on offer to institutional investors, but have no fear. There shouldn't be any of governance "issues" that afflict Essar Energy, because the majority holder is Warburg Pincus, a private equity firm. It will no doubt offload more as it seeks to book profits on what has been a rather successful investment.

The managers and employees who also own a substantial chunk (24 per cent) of the stock will no doubt be of a similar mind. Some of them may already be planning holidays for a lot more than the ones offered for, that's right, a pound by a certain tabloid newspaper.

In some quarters Poundland's challenge when it hits the market is seen to be demonstrating that the model can still work in sunnier economic climes, having thrived in the downturn when discounters are always in vogue.

This might have missed the point. If you can get item X at a discounter you'll probably carry on doing so even if your wages have (finally) started to go further. Why pay more?

Affluent shoppers are no different in this regard than those of more limited means. The company wants to double its number of stores, and there would appear to be no lack of a market for it to do that.

Perhaps the real challenge for Poundland is in maintaining its gimmicky premise. Inflation did it a bit of a favour yesterday by falling to 1.9 per cent, below the Government's 2 per cent target for the first time in ages. There'll be a bottle of pop or two opened at the Bank of England after that, and not the sort of sweet, alcohol-free stuff you can buy at Poundland.

All the same, there will eventually come a time when £1 won't buy a penny chew and it doesn't matter how cleverly the company manages its stock, premises or payroll, it will have to change tack long before that.

The one thing that won't be flogged off for a pound are the shares. The investment banks who will be pricing them wouldn't have truck with that sort of trick. Could that prove be the first crack in Poundland's one pound dam?