‘Gone for £1, but Poundland could still coin it in again’

Poundland was a trailblazer in low-price retail but this week it was sold for no more than its name – the proverbial “nominal sum” at which businesses in deep doodoo tend to change hands for.

But the paltry £1 price-tag – which is about a fifth of Poundland’s average transaction value – does not necessarily mean that the retailer can’t rake in more money in future as new investor Gordon Brothers takes control.

You only need to look at the success of Home Bargains to see that there is big demand among shoppers for a clear value-for-money proposition. In its last reported year, profits at Home Bargains surged 35% to £454.8m, enabling owner Tom Morris to take a dividend of about £1bn.

Others might look at some of Poundland’s peers, such as B&M which has just posted a steep decline in profits, and take that as evidence that at a time when many consumers are still in a tough position financially, and retailers are competing to provide value, giants such as Tesco will be the obvious winners.

In the first half of soon to be ex-parent Pepco’s financial year, Poundland’s underlying EBITDA slumped 75% and like-for-likes were down 7.3%. There was a weak outlook for the full year, so immediate prospects don’t look great.

“From what I’ve seen, he’s never struck me as the sort of person who would be there to read the last rites”

But, accepting that Poundland isn’t starting from a great place, there are reasons to believe that it can regain ground.

First of all, recognising its present predicament, Poundland will be formally restructured. That process – exact details of which have not been disclosed – will not be through a CVA but will nevertheless require High Court approval. As well as renegotiated rents, store closures are a likely result – with speculation of up to 100 – and some job losses can sadly be expected.

But assuming the proposal gets the necessary green light, Poundland will have access to loans and an overdraft from Pepco amounting to £60m while Gordon Brothers will inject £80m of financing.

Poundland will also benefit from the continued presence of experienced and respected management under its new ownership.

Chief executive Barry Williams, who returned to Poundland from Pepco in March and previously ran it for seven years, will remain in post. From what I’ve seen, he’s never struck me as the sort of person who would be there to read the last rites and will be determined to make the business a success again.

“If it gets things right the pounds could look after themselves once again”

Similarly, Mark Newton-Jones, Gordon Brothers’ Europe boss who oversaw the deal, will be familiar to many in retail from previous roles such as leading Shop Direct and Mothercare.

His language when commenting on the Poundland deal was interesting – he described it as “an essential business” that “plays an important role on the high street”. Of course how things pan out remains to be seen but, taking his words at face value he can clearly see a continued place for a rejuvenated Poundland, rather than viewing it as simply an asset play.

Pepco too, will reassuringly keep some skin in the game. It will hang on to a minority stake, enabling it to “participate in the longer-term value creation potential of Poundland”.

Some of Poundland’s biggest problems were self-inflicted – or Pepco-inflicted – such as a mismanaged shift in how clothing was managed. But a Poundland refocused on the model that made it a powerful play in the first place should surely coin it in, just as Home Bargains has done.

Poundland serves 20 million customers a year. The appetite is there so, although it’s gone for a song, if it gets things right the pounds could look after themselves once again.