Investors positive about Steinhoff

Even though Steinhoff’s share price has declined close to 24% in the past six months, investors seem to be optimistic about the prospects of the company. Of the 18 Bloomberg analysts who rate the share, 12 have it as a buy and six as a hold.

Even though Steinhoff’s share price has declined close to 24% in the past six months, investors seem to be optimistic about the prospects of the company.

Of the 18 Bloomberg analysts who rate the share, 12 have it as a buy and six as a hold.

At least two of the investment houses have the company as set to outperform.

Avior industrials and consumer goods analyst Mark Hodgson said after the group’s acquisitions of Poundland and Mattress Firm last year, there was an opportunity to increase the retailer’s earnings.

“My expectation is that the Steinhoff euro-earnings outlook this year looks attractive from the combination of organic growth initiatives and the more material acquisitions which were concluded in 2016.

“The share rating does not appear that demanding and the group balance sheet is in good shape,” said Hodgson.

Analysts at PSG Wealth concur, stating in their 2017 Summer Research and Strategy Report that Steinhoff’s earnings could grow ahead of its European peers. PSG said the share traded on a lower forward price:earnings multiple than its peers, suggesting some rerating potential. Steinhoff’s price:earnings ratio is 15.10.

Although investors are generally positive about the prospects for the company, not many are convinced about the proposed tie-up with Shoprite.

Hodgson said he did not see any compelling benefits in bringing Steinhoff and the food retailer together.

Cratos Wealth senior analyst Ron Klipin said investors were spooked by the prospect of the Shoprite acquisition. “This deal would result in Steinhoff assets being focused on developedmarket operations only, with the emerging-market businesses vesting in Retail Africa.

“The swap ratio, still an unknown factor, as well as regulatory aspects are all hurdles to be overcome before any deal can take place,” said Klipin.

Steinhoff is the world’s second-largest furniture retailer behind Ikea.

Ikea is unlisted and operates in 43 countries. The Dutch group recorded a net profit of €3.5bn in 2015 and has a workforce of 155,000.

Steinhoff operates in 32 countries with a staff complement of 105,800.

In 2016, the group reported an operating profit of €1.5bn.