Steinhoff Africa bucks weaker bourse trend
It really seems to be a case of “familiarity breeds content” regarding investors and Steinhoff Africa (Star).
The newly listed share has defied the generally weaker market sentiment and has steadily moved up from its placing price of R20.50 to more than R23. At this level, it’s on a fairly demanding forward price:earnings rating of more than 22 times. Investors are obviously delighted with the opportunity to invest in an Africa wide retail story and are certainly not discouraged by the possibility of fallout from the European legal battles in which parent Steinhoff is involved.
The performance of the Steinhoff share price over the last three months has been particularly grim. It is down almost 20% and, at about R59, is trading close to a three-year low.
No doubt the legal battle with a former joint partner will get much airplay over the next few months and must dull any hopes of a sustained recovery in the share price.
The contrast between the performance of the two shares may also reflect investors’ concerns about the speed with which the Steinhoff portfolio of businesses was accumulated as well as the price paid for much of the recent acquisitions. By contrast, Star is dominated by familiar old favourites such as Pep and Ackermans.
The prospect of absorbing a controlling stake in Shoprite, which is only expected to take place in mid-2018 as it is awaiting the approval of the competition authorities, is also likely to provide support for a premium rating. Although nothing on the JSE compares with Star, in terms of its business spread and access to Africa, its strong showing is in marked contrast not only to that of Steinhoff, but of other listed retailers too. Share repurchases may be the only thing supporting the Lewis share price while Woolworths dips to new lows every day.
It is tempting to wonder what the Competition Commission is driving at. A vigorously bid open tender over which it was consulted would, you might think, not be a top priority given the commission’s limited resources. And yet, the competition body is now investigating Vodacom for abuse of dominance after securing a four-year contract with the Treasury, which is ostensibly to reduce the costs of voice and data bills, not to increase them.
On the day the commission launched its latest salvo, it revealed that it had dropped an investigation into suspected excessive pricing against the pharmaceutical companies Aspen and Equity because an investigation “cannot be sustained against them”. Or, in simpler language, because the commission has no case.
Making a case over an adjudicated tender, signed without duress between two parties may be equally futile.
It was also telling to note that while the commission launched its pharmaceutical probe with a high-level media conference, the decision to drop the Aspen and Equity probe was made with predictably less fanfare.
Perhaps the market is betting that this latest assault on a listed company will fold in similarly limp fashion: after slumping as much as 11% on Wednesday following the news, Vodacom shares closed 3.2% down, and recovered almost all their losses on Tuesday, finishing 2.17% higher at R154.65. However, the stock has retraced considerably since hitting a peak of R185.51 in August, and an investigation, flawed or otherwise, is likely to crimp any latent enthusiasm.