UK value retailer Poundland has confirmed it plans to launch an IPO in London next month. Announcing the news, management offered a bullish outlook for the single-price retail sector and outlined an ambitious view of future expansion. Katy Askew reports.

Poundland, the growing UK value general merchandise retailer, said yesterday (18 February) it will launch an IPO in March. The offering will comprise 25% of the group’s existing shares, with majority owner, the private-equity group Warburg Pincus , as well as management cashing in some of their chips. Initially, shares will only be offered to institutional investors – a move that would block any potential retail investors from buying up a sizeable stake – before floating on the stock exchange.

The rapid expansion of Poundland, which sells various products from toiletries to ambient groceries, has generated a fair amount of excitement in UK retail.

With 500 outlets, the group is the largest pound store in the country. And Poundland management estimates there is more room to grow in the country’s value sector. The company is opening more than one store a week – and believes it can practically double its store count in the coming years.

The group is also developing other revenue streams – such as an online platform – while expanding its European banner Dealz into Spain over the next two years. The company operates more than 30 stores in Ireland under the Dealz banner.

With such an ambitious expansion plan, an IPO might seem an obvious way of raising necessary funds. However, Poundland is not issuing any new shares – meaning its expansion drive will be internally funded. Potentially, the need to invest to drive growth could put pressure on margins. But the group was quick to emphasise its strong track record of delivering profitable growth.

Revenues stood at GBP880.5m (US$1.47bn) at the end of the 2013 financial year, up from GBP641.5m in fiscal 2011 – representing CAGR of around 17%. Earnings growth has also followed an upward trajectory. Over the same two year period, underlying EBITDA riose to GBP45.5m in 2013, up from GBP31.1m in 2011 – CAGR of around 21%, the company stressed.

Another potential cloud on the horizon is the idea that, as the economic picture brightens in the UK and Europe, consumers will ditch the “everything is a pound” concept in favour of more traditional retailers.

Poundland CEO Jim McCarthy was quick to play down this concern. McCarthy suggested affluent shoppers account for a growing proportion of Poundland shoppers.

“Our single price point and our amazing value are appealing to an increasingly broad section of shoppers with 22% of our UK customers now coming from the AB demographic,” he stressed.

Poundland believes ranging initiatives will enable it to continue broadening its appeal. The company said it carries “some of the most recognised consumer brands in the world” – including Cadbury , Mars , Heinz , Nestle .

However, Poundland believes it is through ranges exclusive to its stores that the group can develop and strengthen its appeal. It carries 50 own-label brand ranges, which typically offer the retailer higher margins.

“The directors believe that product innovation and exclusive product ranges are key competitive advantages for Poundland, and therefore remain committed to refreshing and developing its product range to meet consumer demands. Poundland will continue to work closely with suppliers, both building on exclusive offers of third-party branded products and further developing its own-label brand families, to introduce new products and ranges that appeal to a wider demographic of customers.”

Poundland management is clearly quite bullish on the future. The IPO is expected to be valued at around GBP700m. If Poundland is able to deliver on its ambitious growth plan, it seems likely investors will concur with UK consumers and conclude that the retailer offers good value for money.