It’s about time we had some new public companies from the grocery retail space. It’s been mostly one-way traffic as the likes of Asda, Iceland, Somerfield and Gateway exited the Stock Market in the past decade or so. So are rumours of a Poundland flotation true? In an interview with The Grocer this week, CEO Jim McCarthy didn’t exactly spill the beans, but he didn’t deny it either. “Our focus is to create the strongest possible conditions in the event or possibility [of a flotation],” he skirted. “Flotation is usually a natural output of success for firms to move forward.”
“The market cap valuations reportedly being placed on a Poundland flotation are, well, let’s put it this way, a lot more than a £1”
Adam Leyland, Editor
As recently as May, the FT confidently predicted that major shareholder Warburg Pincus was planning a private sale for £450m-£500m. We heard further rumours to this effect two months ago, with Cannacord Genuity/Hawkpoint in the corporate finance lead. But the noise now emanating from the City is of an IPO, and the valuations reportedly being placed on the discounter are, well, let’s put it this way, a lot more than a £1. When Warburg Pincus bought in in 2010, it was on a six times multiple of its then £30m EBITDA. With EBITDA now up 15.6% to £45m, and sales up 15% to £880m, I’m hearing £600m mentioned. That’s a multiple of 13 times. B&M Bargains sold on a 10 times multiple less than a year ago, and that’s arguably a better business, or at least with a stronger margin structure.
The Poundland rumours may not be true, of course, but such valuations are indicative not only of Poundland’s growth and positioning - and what price would grocery discounter Aldi fetch, if it were to float, following its amazing results? - but the success of recent IPOs on the stock market, with new recruit Foxtons trading on a whopping 14 times multiple. The fact an off-licence chain, Conviviality (aka Bargain Booze), can successfully float (shares are up 50%, valuing the retailer at £100m, a 10 times multiple) says it all really. The market is willing retailers to win.
It’s not just IPOs either. Sports Direct (market cap: £4.25bn) recently joined the FTSE 100. Booker (£2.3bn) has a similar P/E ratio. And both Ocado (£2.4bn) and Asos (£4.2bn) are trading on astronomical multiples as speculators gamble on future earnings growth in online, the retail sector’s other big growth market.
Amidst all this exuberance, however, the grocers - Tesco (£29bn), Morrisons (£6.4bn) and, to a lesser extent, Sainsbury’s (£7.3bn) - have been marked heavily down. If you offer a great story, it seems, the market goes nuts. If you underperform, it’s rational to a fault.