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LONDON (Reuters) - Poundland, Britain's largest single-price discount retailer, is considering an initial public offering (IPO) in the first half of next year, two sources familiar with the situation told Reuters.
The group is also targeting a doubling of its British stores to more than 1,000 as well as expansion in Europe, giving it a growth story to sell should it choose to press the button on a London listing on the back of a successful Christmas.
Discount retailers have outperformed the market in the economic downturn as consumers, battling inflation rising faster than wages, have sought to make savings. On Monday, Aldi posted a more than doubling in 2012 profit.
Poundland is 76 percent owned by private equity group Warburg Pincus, with the balance owned by the retailer's management, led by chief executive Jim McCarthy, a 30-year veteran of the retail sector.
Speaking after the 458-store firm posted a 15.6 percent rise in underlying earnings for 2012-13, McCarthy said he understood the strong performance "would prompt some of the questions" (about an IPO) but declined to be drawn on the issue.
A Financial Times report in May said an auction among private equity firms was more likely than a flotation.
McCarthy said of Warburg Pincus, "They're private equity and they buy and sell businesses. Management's job is to keep driving the numbers and we'll continue to focus on that."
Warburg Pincus declined to comment.
Stronger equity markets have helped revive new listings in Europe this year. European firms have raised $15.9 billion from flotations in the first nine months, three times the year-ago level, according to ThomsonReuters data.
Independent retail analyst Nick Bubb said the British quoted retail sector is short of plays on two of the fastest growing areas of the industry, namely discount retailing and online retailing, so a Poundland IPO should be well received.
"But Poundland has a lot of faster-growing discount competitors and it will need to convince investors that it is not showing some signs of maturity," he said.
The group made underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of 45.4 million pounds ($73.5 million) in the year to March 31, up from 39.3 million.
Total sales rose 15 percent to 880 million pounds as its offer of over 3,000 products and over 1,000 branded goods from firms such as Cadbury, Heinz, Coca Cola and Kodak - all at the price of one pound - found favour with consumers.
"We're very good in austere times but we're even better in good times," said McCarthy, noting the appeal of the Poundland brand is broadening across all socio-economic groups, attracting an average of 4.5 million customers a week.
Poundland said trading in its new financial year was ahead of internal expectations.
The group opened a net 69 new stores in Britain and Ireland in 2012-13 and plans 50 net new stores in 2013-14, having already opened 30.
"Over time I'm confident that we will have over 1,000 Poundland stores in the UK," said McCarthy.
He also sees potential for further international expansion after a profitable first full year of trading at the firm's multi-price format Dealz business in Ireland.
He said Poundland was close to taking Dealz into new European markets but declined to identify them.
Editing by Louise Ireland