Deutsche Bank cuts Poundland to 'hold' from 'buy'

Deutsche Bank downgraded Poundland to ‘hold’ from ‘buy’ but lifted the price target to 205p from 180p.

“Due to recent share price appreciation we now see limited fundamental upside and since Steinhoff does not like to ‘pay for synergies’ we therefore downgrade,” the bank said.

On Wednesday, Steinhoff International confirmed it was considering a possible offer for the entire issued share capital of the London-listed discount retailer. The announcement was made without the consent of Poundland, which responded by issuing a statement advising its shareholders to take no action.

Steinhoff confirmed on Thursday that it has built a 23% stake in Poundland, which DB said has led to a significant expectation the business will be acquired in its entirety.

“Steinhoff’s strong balance sheet, interest in the discount segment and other factors make a bid more likely than not.”

Deutsche Bank noted the company’s full-year results on Thursday were “materially in line with consensus expectations”.

It said momentum remains disappointing with like-for-like sales declines in 1Q17 expected to continue.

DB argued that the integration of the 99p Stores has effectively become more expensive due to higher capex and working capital needs, while synergy guidance is unchanged.

“The incoming CEO gave some initial thoughts on priorities but insufficient to give us much greater comfort in a recovery in 2H and we lower forecasts 6-10%,” the bank said.

At 1050 BST, Poundland shares were flat at 205.02p.