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Steinhoff heading into incredibly challenging week - traders

Dec 15 2017 08:53
Carin Smith

Cape Town - Next week will prove incredibly challenging for the entire market, but particularly Steinhoff International, according to Jordan Weir, a trader at BayHill Capital.

He pointed out that Steinhoff's board will meet with creditors on December 19 and the Enterprise Chamber of the Amsterdam Court of Appeal will rule on the decision whether or not to probe the company's accounts on December 22.

At least six organisations have so far announced they were investigating Steinhoff after CEO Markus Jooste quit last week and the company's share price plunged dramatically.  

Steinhoff chairperson Christo Wiese, who was also appointed interim executive chairperson to replace Jooste, also resigned on Friday from both roles to reinforce the independent governance of the company and to address any possible conflict of interest that may exist.

"Until there is clarity on all allegations and investigation outcomes, Steinhoff’s share price is likely to remain under a sustained amount of pressure," said Weir.

Steinhoff's share price closed at R8.92 on the JSE on Thursday, a far cry from R46.25 on Tuesday, 5 December, just before the announcement that Jooste resigned amid an accounting scandal.

Weir added that Steinhoff's announcement on Thursday that its financials for 2016 will also need to be restated will leave a bitter taste in the mouths of investors in the current market.

He said, however, that most investors would have expected that retrospective corrections would need to be made at Steinhoff.

"The large drop in share prices on the morning of 14 December 2017 can, therefore, be seen as more of a knee-jerk reaction to the statement released before market open, although the price gradually strengthened throughout the day, back towards the previous day’s close," said Weir.
"The share price may show signs of some recovery in the short to mid-term, but definitely not back to levels of a satisfactory nature until the investigation on accounting irregularities has been completed and publicly reported."

Nishlen Govender, equity portfolio manager at Citadel, said Steinhoff’s announcement of a restatement of past financials provides an element of clarity as the restatements were previously merely conjecture based on the various rumours.

"Even though we don’t know the extent of restatements, the financial years 2015 and 2016 were significant years for the group as it grew and consolidated offshore," said Govender.

Assets added over this period include Poundland, Mattress Firm, Tekkie Town and Fantastic Holdings and represent a period in which the asset base of the business grew in the region of 40% - after growing significantly the year before too, he explained.
"The period of acquisition resulted in the share price of Steinhoff reaching approximately R95 in 2016 as the company laid out its plan of synergies and economies of scale that would come from the new home furnishings and apparel behemoth," said Govender.

"The fact that so much change happened in such a short time, and that it formed the narrative for how the company would be dominant [and was reflected in the price], now poses significant concerns as we are still unsure about the extent to which this was misrepresented, but do know that it will be material given the significant changes to the balance sheet in the period."
In his view, all of this is "catastrophic to investor sentiment" and is reflected in the share price of under R9.00, which had rebounded up to R14 just a day before the announcement of the restatement.

Abri Du Plessis of Gryphon Asset Management, said Steinhoff's announcement of the need for a restatement of the 2016 financials unfortunately just contributes to the uncertainty in Steinhoff at this point in time.

"Uncertainty will push back any meaningful recovery in the share price and may keep the group under pressure from a debt and liquidity perspective," said Du Plessis.

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