Asset sales won’t help Steinhoff, earnings will
After a spike in the Steinhoff share price on Tuesday investors seemed to take a breather on Wednesday, perhaps worrying they may have overdone the optimism. This volatility is likely to be the sort of trading pattern we’ll see from Steinhoff until the end of the year, when the PwC report is due to be released.
The share price will spike up and down as investors vacillate between hopes of recovery and fears of steady demise.
We can also expect to hear ongoing rumours of asset sales, some of which will be true. With €9.4bn non-South African debt, generating an annual interest bill of about €400m, and a collection of businesses that are struggling with tough trading conditions, the board might be tempted to try to realise some quick cash inflows.
But it’s difficult to see how asset sales will sort out its problems. In May the board provided some indication of the marketability of the various businesses in Europe and the US. The only assets of value were Steinhoff Africa Retail (Star) and KAP, both of which are listed. The €3bn attributed to Steinhoff’s 71% stake in Star may now be a little lower but not for long. The 26% stake in KAP was valued at about €0.4bn.
The announcement that South African-registered Steinhoff Investments had decided to pay a dividend of 427.4c on each of 15-million preference shares was to be expected. Because of the conditions attached to the shares, Steinhoff Investments has to pay dividends on them if Steinhoff is to receive dividend payments from Star.
Star paid no dividend for the six months to end March but it said it is targeting dividend cover of two times headline earnings for the current financial year. Steinhoff’s share of that will certainly help to pay a lot of bills.
Of the four new stock exchanges licensed in recent years — ZAR X, A2X, 4AX and EESE — A2X has had the most success attracting new listings, announcing its ninth company on Wednesday.
The new exchanges have different strategies and licences, which perhaps make it unfair to compare them directly. A2X, for example, is targeting heavyweights on the JSE for secondary listings on its exchange; the licence conditions of EESE, on the other hand, only allow it to list restricted shares, making it suitable for empowerment schemes. 4AX is targeting companies with a market cap of between R100m and R8bn.
It’s early days, but so far A2X is the undisputed frontrunner, counting Sanlam, Coronation Fund Managers and African Rainbow Capital — also a shareholder — among its secondary listings. That one can still count its number of listings on two hands shows just how difficult it is to take on an incumbent in a highly regulated market. Not only do you need to convince the issuers your exchange will be worth their while, but also brokers, vendors and investors. A2X, which is led by Investec veteran Kevin Brady, believes competition between exchanges helps open up and grow the market, boost liquidity and improve price discovery.
In SA’s investment world, it has forced the JSE to lower costs, cut unnecessary costs and improve its IT systems. For that, the new exchanges — and the shareholders who back them — already deserve a Bell’s.