No one sets out planning on going to Poundland. That could be a general philosophical point about this great journey called life. It is also what the company that runs the everything-for-£1 retail chain actually admits.
Shoppers tend to pop in to Poundland when they are going to or coming back from somewhere. It, and its newly acquired sister brand — the cunningly different proposition called 99p Stores — will never be what in the industry they call a destination shopping location.
So when there’s a general shortfall in footfall, when there are fewer shoppers out on the streets — as there have been in this past golden shopping quarter stretching from Hallowe’en through Black Friday to Christmas and the seasonal sales — Poundland gets disproportionately whacked.
A trading update for that quarter made Poundland shares the sort of thing you wish you hadn’t bought, either at the 400p they were trading at last spring or even the 200p this week. After investors were told profits would be lower than most had hoped, the shares were heading towards 100p: off 24¼p at 167¾p, their lowest since floating 21 months ago at 300p.
Retailers can blame the weather all they like, but the high street is in long-term decline because of the internet. That represents one fundamental problem for Poundland. Another is that all those now shopping online are not really going to have poundland.co.uk (it exists) as their destination website.
The investment counter-story is that the doom-mongers should just wait and see what will happen to profits when the dismal 99p Stores outlets — bought last year — are transformed into the more upmarket offering of Poundland (everything is relative in this outpost of Planet Retail).
According to Peel Hunt, this year’s £40 million of profits could nearly double within a year. If the broker is right, the shares, like Poundland’s wares, could be looking cheap.
What Poundland didn’t tell anyone officially yesterday though was that like-for-like sales over Christmas were down 5 per cent. That is a properly poor performance for a retailer at the austerity end of the high street. The question for investors is would you want to catch this falling knife (even if they are just a pound for a pack of four)?
Revenue up 30%
Net cash £35m
MY ADVICE Avoid
WHY Shares have plunged
to their lowest since flotation following a profit warning
and fall in like-for-like sales as high street footfall declines
Carolyn McCall has some exciting dates coming up. She is off to the palace this year to receive her damehood. Before that, next week in fact, she will be on a City roadshow, asking investors if they would like some easybonds.
The first-time dip into the wholesale debt market by easyJet — along with newly acquired fancy top-of-the-class aviation industry credit ratings from S&P and Moody’s — shows how grown-up the one-time orange-coloured upstart has become. It should also make financing the 200 Airbus planes it has on order a whole lot cheaper.
Meanwhile, the shares become ever more of a conundrum. Its 4.6 per cent rise in passengers in December looks positively anaemic next to the 25 per cent reported by Ryanair. That, though, is to misunderstand the traffic data.
Ryanair’s headlong expansion is by way of a new wave of £9.99 fares — not enough even to pay air passenger duty, suggesting that rather than chasing profitable growth, Ryanair is effectively paying its punters to fly.
The terrorism-related weakness in the shares — easyJet is more exposed to the Middle East and France than other low-cost airlines — is beginning to make the stock look cheapish, trading on a multiple of about 11 times this year’s expected earnings.
There are always the worries of an upsurge in activity from easyJet’s noisy lodger, the 36 per cent shareholder and founder Sir Stelios Haji-Ioannou; and over how long Dame Carolyn will hang around after six years in the cockpit. That aside, easyJet remains a ticket to ride.
Passengers up 4.6%
Load factor 86%
MY ADVICE Buy on weakness
WHY The long-term growth story remains irresistible
If you want a bit of this so-called housebuilding boom, buy bricks. Just look at Ibstock go. Up nearly 20 per cent since flotation ten weeks ago. As for the housebuilders — are we seeing the top of the cycle, with margins under pressure from slowing selling prices and rising labour costs? Local planning clearances are still cumbersome and the longer-term picture is of increased supply tempering demand.
The latest figures from Persimmon suggest it remains at the top of its game, with completions in recent months up 13 per cent year on year and operating margins remaining north of 20 per cent. It is also still buying land at what it considers to be the right price.
A couple of times in recent months, the stock market has had a go at calling the top of the cycle. The trick for investors in the sector is knowing when to move on.
Persimmon is more complicated than that. It is in the middle of a £1.9 billion, nine-year programme to return cash to shareholders. The City is getting excited about the prospects of a £300 million, 100p a share slug — yielding more than 5 per cent on current prices — this spring.
For that alone, Persimmon is worth hanging on to.
Completions up 8% Revenues £2.9bn
MY ADVICE Keep holding
WHY There are further high-yielding payouts on the way
And finally . . .
A brilliant performance from Marks & Spencer, one of just three risers on another day when the rest of the FTSE 100 was taking a clattering. And this after yet another missed sales forecast. So the generally positive sentiment must be down to relief that Marc Bolland has finally slung his Dutch hook. Or that M&S has finally come to its senses and appointed one of its own, and one of Croydon’s finest, Steve Rowe, as its new chief executive. Or maybe sales are just vanity and the sanity is in the rising profit margins.
