Investors seem to be increasingly sceptic about its business model, but the rating may just be too low
Keep an eye on it
STEINHOFF’S SHARE PRICE has performed badly against those of other listed retailers on the JSE over the past eight or nine months. Perhaps it’s in fact that unfair comparison that’s putting its share price under pressure. Steinhoff is possibly more of a manufacturer than a retailer. The greater portion of its turnover and income is in Germany. Its business model – one of vertical integration, in which literally the whole chain from forestry right down to the selling of furniture is controlled – may also be one investors aren’t too sure about.
However, Steinhoff is still a big company with excellent performances over the past 10 years. However, it looks as if Steinhoff’s business and investors’ desire to invest have currently cooled off somewhat. The table showing the market capitalisation of the listed retail companies on the JSE tells its own story. Shoprite, with a market value of R50bn, is the biggest in the country. Pick n Pay, with a market capitalisation of only R22bn, comes after Steinhoff, which is solidly in second spot with a market value of R27,8bn.
Steinhoff and Shoprite are clearly not going to merge, as Finweek speculated last year. But investors may still be wondering about the significant difference in the ratings of the two shares. Analysts speculate Shoprite achieved a profit of 443c/share for the year to 30 June 2010. The shares are currently trading at R90, or more than 20 times the profit per share. Over the same period, Steinhoff probably earned 240c/share – but its price is a very modest 1900c/share, an earnings multiple of only 7,8.
Steinhoff’s profit had already bogged down somewhat for the six months to December 2009 while everything is still going well with Shoprite. But the analysts
Investors may still be wondering about the significant difference in the ratings of the two shares
expect that over the next two years Steinhoff will achieve better profit growth than Shoprite. A modest increase of only 26% is predicted for Shoprite’s profit, while Steinhoff’s could climb by 42% over the next two years, analysts say. Shoprite is No 1 and – with Africa on the boil – things will only keep getting better for the group. But a P:E of 20 is solid, even expensive or too expensive, some prospective investors may say.
At the same time, Steinhoff’s investment rating – a historical P:E of below 8, falling to below 6 if the expected profit for two years forward is used – is low: perhaps too low. Keep an eye on this share. If it looks over the next six weeks as if its price is again moving closer to 2000c/share that could just be an indication its financial performances for the six months to June 2010 have recovered recently. You need have no qualms about buying this one, because the expected final dividend of 60c/share that will be paid by December will at least be a consolation prize if its price bogs down.
GLOBAL LIFESTYLE SUPPLIER Steinhoff is a company with excellent performances over the past 10 years