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Steinhoff's future is looking better and better

A Steinhoff International Holdings logo on display outside the company's offices in Stellenbosch. File picture: Waldo Swiegers

A Steinhoff International Holdings logo on display outside the company's offices in Stellenbosch. File picture: Waldo Swiegers

Published Sep 4, 2017


CAPE TOWN - Steinhoff is the second-largest furniture retailer in the world after Ikea, having grown rapidly over the past few years. Last week Steinhoff dropped back to a new 12-month low of R60, back to levels of January 2015.

It recovered some of the losses quickly when investor fears were put to rest by a better than expected quarterly update, and comments that Moody’s rating agency was satisfied with the explanations on the dishonesty accusations.

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The source of the upsetting magazine article seems to be a dispute with a disgruntled previous joint venture partner, which is also the subject of a court case.

It is not possible to say when the dispute will be settled and what the damage will be, but Steinhoff did make a provision.

German magazine Manager Magazin reported that since 2015 prosecutors in the northern German city of Oldenburg had been looking into whether the retail company’s revenue had been inflated.

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The magazine article also claimed that chief executive Markus Jooste was spending less time in Germany.

Major shareholder Christo Wiese was quick to come to Jooste’s defence, saying he spends half his life in Germany.

Run on stocks

This is an unfortunate event for Steinhoff. The share price is about 25% below its Frankfurt listing price end 2015.

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This is amid a huge run on stock markets worldwide despite the fact that this business grew sales for the nine months ended June 30, 2017, at 8% on a like-for-like basis.

Total revenue increased 48% due to the substantial acquisitions made across the globe. Mattress World will soon be bedded down, and the advantages will start flowing through to the bottom line.

According to the trading statement, the group accelerated the implementation of its long-term strategy in the US, resulting in the rebranding and restructuring of 40% of its store estate.

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The group also exited the restrictive supply arrangement with Mattress Firm’s previous biggest supplier in April 2017. As reported at interim stage, these actions created short-term disruption in the business.

The US businesses contributed 15% of the total revenue and Australia 6% The European and African businesses did very well, and they now contribute 52% and 27% of revenue respectively. Steinhoff has expanded rapidly in the last three years and completed acquisitions in SA, the UK and USA.

Shining Star?

The listing of Steinhoff Africa Retail (Star) is on track for the end of September. Star will remain a subsidiary of Steinhoff International and will include Pep, Ackermans, JD Group and its building products businesses.

Given the size of the assets, it is likely to be part of the JSE Top 40 Index. The pre-listing statement, which will contain all the details of shareholders’ rights, is due to be released this week. It is also expected to provide details on possible fees that Star will have to pay Steinhoff.

The separate listing is expected to simplify the valuation of the distinct geographical businesses.

Steinhoff is a world-class company, recording decent growth, trading at a price to earnings ratio of 13. This seems good value for money.

It is interesting that the “dishonesty and tax evasion” story circulated shortly before the Frankfurt listing in December 2015, and now again before the unbundling and separate listing of Star.

Markus Jooste made upbeat comments last week in the trading statement:

“We are pleased to report that the group’s organic sales momentum, as well as the integration and sales development of the acquired businesses, are progressing well.

"Once again the group’s sales growth is underscored by the resilience of the low-price, value and discount market segments in challenging consumer environments as well as the diversity of the group’s sales mix across various geographies.”

Amelia Morgenrood is PSG Wealth regional director.


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