Discount retailer Poundland fires the starting gun on its hotly-anticipated IPO, yet the 'pile'em high and sell'em cheap' merchant surprises by excluding retail investors from the offer. Nevertheless, the austerity winner's main market float should be well-received as the cut-price retailer offers a play on the structurally growing value sector.


Europe's biggest single price value retailer by both sales and store numbers, famed for selling a wide range of products and brands for £1, is expected to be valued at circa £700 million when it makes its market debut in March.


News the offer is for institutions only, excluding the man in the street on which Poundland's fortunes have been built, has irked some. Yet Poundland will surely attract a strong following given the exposure it offers to the fast-growing value general merchandise market benefiting from the structural shift in consumer behaviour towards value. Poundland's competitive strengths including enviable brand recognition, customer loyalty, national coverage and strong cash generation add to the investment attractions.


Owned by Warburg Pincus, which will make a partial exit at float, Poundland has expanded rapidly under private equity ownership and now has 500 plus stores across the UK and Ireland, trading in the latter territory under the Dealz fascia. Selling a wide range of products ranging from household goods to groceries, Poundland's stores are usually sited in high footfall locations such as shopping centres, retail parks and high streets.


Chief executive officer Jim McCarthy sees long-term scope for more than 1,000 UK stores. Also preparing for a launch in Spain under the Dealz brand, Poundland points out its new stores mature quickly and deliver a rapid investment pay-back of around 12 months.


Poundland, whose growth strategy also includes a multi-channel focus, has proved a clear austerity winner, luring ever more cash-strapped middle class shoppers to stores. Indeed, roughly 22% of its UK customers emanate from the higher end AB socio-demographic.


Significantly, its low-cost and scalable business model is a winning one, with sales having grown at a compound annual rate of 17% to £880.5 million between the years to March 2011 and 2013.


Showcasing the operational gearing in the business, underlying EBITDA (earnings before interest, tax, depreciation and amortisation) grew even faster, up 21% to £45.5 million over the same period. Poundland is basking in the glow of record Christmas sales, yet it faces growing competition in the high-growth discount market from rivals including B&M, another IPO candidate chaired by Sir Terry Leahy, not to mention Poundstretcher.


Alongside today's intention to float statement, Poundland, chaired by former Tesco (TSCO) heavy-hitter Andy Higginson, announces the appointment of well-followed City names to the board as non-executives. They include Darren Shapland, who jumped ship as Carpetright's (CPR) CEO last year and Trevor Bond, the Chief Customer Officer at US-listed foods behemoth Mondelez (MDLZ:NASDAQ).

Issue Date: 18 Feb 2014