Armchairs for critics
THIS COMPANY HAS proved to be quite resilient despite a large exposure to consumer spending. Share price performance has been flat in recent months and over the past year has lost 14,5%. That’s not bad, considering the havoc in the South African and global markets.
Part of Steinhoff’s defensive strength is its wide global presence: it operates in 15 countries in Europe, the Pacific Rim and southern Africa. Around 55% of revenue is in currencies other than the rand, mainly the euro, which has been stronger than the rand and the US dollar. That makes Steinhoff a rand hedge without some of the negative effects of an offshore listing.
There’s also the much-vaunted vertical integration strategy, controlling the production, distribution and sale of household goods often from the forest to the mill, the factory and the retail outlet. Consolidation of that strategy in the European Union saw a large increase in turnover over the past financial year.
But it’s a share investors tend to love or hate. It’s difficult to pin down why, but it seems connected to perceptions of CEO Markus Jooste. He’s been doing an excellent job running Steinhoff, as its most recent financial results show. But it seems some don’t like his style. That’s not an empirical way to judge a share, but sometimes perceptions are all-important.
If there’s one weakness it’s that Steinhoff is seen as a one-man company. However, it has strong institutional support, including Investec Asset Management, RMB Asset Management, Old Mutual Investment Group SA and the Public Investment Corporation as major shareholders. There’s also German investor Claas Daun. All see value in the share, and with Steinhoff trading close to net asset value, it’s definitely a value play.
But it’s hard to get too excited about its short-term prospects. With the possible exception of the Pacific Rim, consumers in its other key markets will remain under pressure. When spending gets tight, furniture and appliances can wait.
Further out, though, a low earnings multiple makes Steinhoff look an attractive buy for patient investors.