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Steinhoff shares rally, but investors urged to remain cautious - analyst

Jan 04 2018 18:09
Lameez Omarjee and Jan Cronje

Cape Town – The share price of embattled multinational furniture and household goods retailer Steinhoff [JSE:SHF] strengthened by as much as 30% on Thursday, in the wake of positive news from one of its European subsidiaries. 

Steinhoff's share price opened at R7.10 on Thursday morning and briefly reached an intraday high of R9.30. The share was trading at R8.52 by 16:42, up 23.8%.

The conglomerate's shares had opened at R5.50 on Wednesday, and closed the day 22.9% stronger at R6.76.

While the Stellenbosch-headquartered group's shares have risen over the past two days, they are still trading about 80% down from a month ago, before the group's CEO Markus Jooste resigned amid accounting irregularities.

Musa Makoni, a trading specialist at Easy Equities, said by phone on Thursday that investors needed to be cautious despite the recent rally. 

Makoni said investors will have to wait for the release of the group's restated financial statements, dating back as far as 2015, to more fully understand what happened at the group. 

Steinhoff is currently facing an internal investigation by PricewaterhouseCoopers and an investigation by German authorities.

Part of the reason behind the share’s recent two-day rally could be the fact that European retailer Poundland recently secured independent funding, explained Makoni. 

Poundland, one of Steinhoff’s European subsidiaries, on Wednesday announced that its parent company Pepkor Europe had secured a £180m (approximately R3bn) loan facility to support its ongoing capital expenditure.

In a media statement Poundland said the independent loan would apply to it and its discount European sister stores Dealz, PEP & CO and PEPCO.

Pepkor Europe is owned by Steinhoff.  According to a recent market presentation by Steinhoff executives, Pepkor Europe owns a total of 2 145 stores in 12 countries in north and eastern Europe. 

Poundland also said it had experienced its “most successful Christmas since it began trading in 1990 with sales growing at 5.6% for the 12 weeks to 24 December 2017.”

“Poundland’s festive trading builds on a remarkable turnaround that has seen a swing in like-for-like sales of almost 9%, moving from -4% just over 12 months ago to Thursday's market-leading performance,” it said. 

Steinhoff bought Poundland in 2016 for £597m (approximately R11.4bn at the time).

More board changes, liquidity update 

Steinhoff, meanwhile, in an investor update late on Thursday announced that its current chief financial officer Ben la Grange had stepped down as CFO and as a member of the management board to "focus on the preservation and procurement of liquidity in the group" and help finalise its delayed 2017 financial results. 

He will be replaced as CFO by Philip Dieperink, who is currently the CFO of Steinhoff UK. 

Steinhoff added that while it had achieved "some degree of stabilisation in its operating businesses" following meetings with bankers and lenders last month, "significant near-term liquidity" was still required in some of the business units.

"The supervisory and management boards of the company remain committed to work with its lenders and other finance providers in finding solutions and to return liquidity to the group in order to stabilise the affected underlying operations and will update the market in due course," it said. 


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Company Snapshot

We're talking about: STEINHOFF

Steinhoff International, once the darling of fund managers, risks falling out of the JSE top 100.
 

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