In­vestors miss the mark

Why this suc­cess story is dif­fi­cult to un­der­stand or trust

Finweek English Edition - - Companies & Markets - STEIN­HOFF

STEIN­HOFF IS ONE OF the in­cred­i­ble op­por­tu­ni­ties that in­vestors just don’t un­der­stand or value. For some or other rea­son they find it dif­fi­cult to com­pre­hend or trust this suc­cess story com­pletely. Yet the fig­ures tell an en­tirely re­li­able tale. This fur­ni­ture man­u­fac­turer and re­tailer – in­ci­den­tally, one of the top five in Europe that earns as much as 80% of its in­come in euro and is there­fore also an ex­cel­lent new-gen­er­a­tion rand hedge – earned a healthy 263c/share for its fi­nan­cial year to June.

From that it de­clared a sin­gle div­i­dend of 60c. Its shares are cur­rently trad­ing at 1250c, a ridicu­lously low earn­ings mul­ti­ple of less than five and a div­i­dend yield of 5% for an or­gan­i­sa­tion with a mar­ket value of R17bn. It’s still part of the top 40, even though its share price has been al­most cut in half over the past year, like many oth­ers.

Un­like your or­di­nary fur­ni­ture re­tailer you don’t hear about Stein­hoff at ev­ery cor­ner. But in our sit­ting rooms most of us sit on a sofa man­u­fac­tured by Stein­hoff. Without any fan­fare, it’s one of the top com­pa­nies in Europe and the largest in the fur­ni­ture in­dus­try in Africa.

The com­po­si­tion of the group’s ac­tiv­i­ties is best ex­plained by looking at its four ma­jor di­vi­sions in­di­vid­u­ally.

Fur­ni­ture re­tail­ing con­trib­uted 28% to group turnover over the past year but only 19% to op­er­at­ing profit. That’s af­ter the divi­sion achieved a 63% in­crease in turnover over the past year. Other re­tail, mo­tor ve­hi­cles and fi­nanc­ing con­trib­uted 24% to turnover, but only 10% to op­er­at­ing profit. The divi­sion’s turnover rose by only 6% over the past year – but to a very healthy R12,4bn.

Man­u­fac­tur­ing and sourc­ing of fur­ni­ture and house­hold goods is by far its most im­por­tant divi­sion and con­trib­uted 37% to turnover and 43% to op­er­at­ing profit. The divi­sion’s turnover, which rose by 40% to R19,3bn over the past year, should make in­vestors sit up and take note.

Lo­gis­tic ser­vices were re­spon­si­ble for 10% of turnover and 9% of op­er­at­ing profit.

Stein­hoff is clearly no runof-the-mill fur­ni­ture re­tailer ex­pe­ri­enc­ing prob­lems with SA’s Na­tional Credit Act, bad debt and con­sumers run­ning out of money. Rather, it’s a kind of con­glom­er­ate show­ing some re­sem­blance to Bid­vest.

Over the past year, Stein­hoff also com­bined its prop­er­ties in Ger­many, Poland and Hun­gary in a prop­erty com­pany sit­u­ated in The Nether­lands. The Dutch group was then ex­changed for a 45% in­ter­est in Hem­is­feer In­ter­na­tional Prop­er­ties. Like its far larger sta­ble­mate – Lib­erty In­ter­na­tional – the group is qui­etly putting to­gether a port­fo­lio of in­ter­est­ing Euro­pean prop­er­ties from which it will re­ceive a man­age­ment fee, as well as cap­i­tal profit in due course. Even more rea­son why in­vestors shouldn’t see Stein­hoff as just the fur­ni­ture store on the cor­ner.

For prospec­tive in­vestors some more fi­nan­cial food for thought: Stein­hoff has a net as­set value of 1719c/share. Its share price is only 1250c, for an ex­cel­lent price to book of 1,37. The Amer­i­cans are now sud­denly again fond of that ra­tio, af­ter be­ing pre­pared for many

FOREC>COM­PANY AN­A­LYSTS' AST

Source: McGre­gor BFA

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