Poundland is seeking £50m to finance its 99p Stores acquisition, but has warned first-half profits will fall. Here is what the analysts say.

“Today’s news of a £50m placing should not come as a big surprise.

“What will raise eyebrows is the news that “indications are that 99p Stores’ financial position has weakened somewhat since our original due diligence” and that, because of tough trading comparables (like-for-like sales are down by 2.9%) and higher pre-opening costs, “we anticipate that the group profit before tax for the first half of the current financial year will be lower than in the first half of 2015”.

“However, Poundland says that the full-year is on track and that the 99p synergies remain compelling, so not too much damage will be done.”

Nick Bubb, independent analyst

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“While there were undoubted frustrations en route for management we share Poundland’s pleasure that the 99p acquisition was cleared with no remedies and so completion is set for the September 28, 2015.

“Sales progress should emerge from the introduction of Poundland’s ranges across the 99p estate, particularly the much stronger general merchandise offer to our minds, plus margin progress from greater scale and the dilution of central overheads once full integration is completed of course.

“We will also be interested to see if 99p brings distinctive FMCG benefits to Poundland in terms of product.

“Poundland has pointed out that there is the possibility that the trading performance of 99p may have deteriorated. While disappointing for the operators of 99p in the interim, this is not unduly concerning to Poundland due to the reality that this is primarily a real estate deal; the original £55m price tag remains intact.”

Darren Shirley, analyst at Shore Capital

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“The deal brings together the UK’s two largest single-price value retailers.

“It will give Poundland considerably more scale (40% more stores, or 251) and strengthen its position and, in our opinion, like-for-like growth potential. We would expect synergies, although neither these nor the costs (and capital costs) of integration have been quantified.”

Alexander Mees, analyst at JP Morgan

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“Management intend to convert 10 stores to the Poundland banner before Christmas and complete the conversion process within 12 months, so roughly six stores a week from January to September 2016. Poundland wants to keep the majority of stores but will entertain bids for some overlapping stores and the larger multi-price Family Bargain stores.

“Management confirmed that they still plan to open 60 stores a year (70 in FY16e), with separate teams responsible for the core business and the integration process. Post the 99p stores integration they see scope to build from 900 UK stores to 1,400 (based on the current industry structure) and also intend to participate in further industry consolidation.

“Meanwhile, they fully intend to mitigate the cost of introducing the living wage (much like they did with the VAT increase) and increasing shelf-ready packaging and self-scanners will help with this.”

Caroline Gulliver, analyst at Jefferies