Investors miss the mark
Why this success story is difficult to understand or trust
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