UK poundshop market, page-4

It is certainly a good example of what markets do - i.e. test your resolve/patience.

Whenever prices fall, I turn to research rather than the sell button. As a result, I've been spending more time working through the UK/Poundworld collapse to see what this could mean for TRS (and any potential PE bidders). Here is what I have found so far:

- Poundworld was half the size of Poundland, so was a distant second to the largest UK DV operator where scale is a key driver of costs/profitability;
- Other players, such as Poundland and B&M (which is shooting the lights out with EBITDA margins >10% on an expanded product range) are both doing well and continuing to grow same store sales despite a highly competitive environment (with Aldi, Tesco, Asda etc) and a weak Pound due to Brexit concerns. This latter point is particularly important as I suspect one of the markets current concerns is the weak AUD;
- The former owner of Poundworld (who sold out to private equity), said TPG had raised the company's cost structure too much and brought in the wrong type of mgt (supermarket retailers) that had weakened its position as competition intensified.
- Poundworld also suffered from holding onto its 1 pound price point for too long (they changed this towards the end, but it was too little too late and undermined their proposition with consumers). TRS does not suffer from this problem as they are already a multi price point retailer.

Given the above, the position of TRS is much stronger. It is clearly the largest discount variety retailer with sufficient scale to remain competitive, but needs to get its HK sourcing and product ranging working well to improve profitability. I think the cash balance provides a useful buffer against any near term uncertainty, but the more I look to some of the UK offerings (B&M in particular), the more I think that TRS may be better served to use this cash for new store format development - there is still a lot that can be done here to drive traffic/improve sales.

While it is always possible that TRS has had a poor Fathers Day selling period (and I suspect this is weighing on minds as the price falls), we have seen too many times with this stock that share price 'information' is meaningless, so I suggest sitting tight/buying more while we wait for the AGM update.