Steinhoff shares hit all-time low as it cuts stake in STAR
Scandal-hit company seen as likely to sell more to refinance debt
● Steinhoff International continues to bleed, with shares in the one-time retail favourite falling to their lowest levels in a week in which the disgraced company said it was reducing its stake in its crown jewel, Steinhoff Africa Retail, to boost its finances.
The sale raised about R3.5-billion and constituted 6% of the subsidiary’s shares. It left the Dutch-based retailer with just more than 71% interest in the owner of PEP and Ackermans stores.
But given the woes experienced by the company in the wake of the accounting scandal that broke in December and saw billions wiped off its valuation, market analysts expect Steinhoff to sell more of its stake to refinance its debt.
“It’s almost inevitable that Steinhoff would sell more shares than what they have currently put to the market,” said Zwelakhe Mnguni, the chief investment officer at
Benguela Global Investments.
“It’s a start and they’ll probably have to sell more, but the working capital requirements are heightened.”
This week, Steinhoff reached a low of R2.16, the lowest it has ever been since listing 20 years ago, and is now about 53% down this year alone.
Charles Allen, a senior retail analyst at London-based Bloomberg Intelligence echoed Mnguni, saying: “There is always the risk that Steinhoff may become a forced seller of a much larger stake in STAR.”
A spokeswoman for the group said the funding from the share sale meant it had nearly completed its South African debt reduction and refinancing programme.
“There was keen institutional interest in the placing, which was multiple times oversubscribed. Steinhoff views its STAR shareholding as a strategic investment,” the spokesperson said.
She said the final step in the South African debt reduction and refinancing programme would be a STAR refinancing package that would enable STAR to repay its inter-company loan of about R16-billion to Steinhoff.
But Mnguni questioned the value of STAR’s assets, especially its star player PEP.
While its parent’s shares remain under significant pressure, STAR’s shares have gained more than 13% from the lows of December. They trade on the JSE on a consensus prospective price:earnings ratio of about 14.5 times, similar to Truworths’ at 14.0 times.
PEP founder and Steinhoff’s largest shareholder, Christo Wiese, sold the clothing retailer to STAR “at a ridiculously inflated price, so for the kind of returns that STAR generates, the price is probably fair at this stage. But they still need to do a lot of things to prove that they are worth more than they are trading.”
Mnguni said: “There is the continuous suspicion that maybe there is something lurking in the numbers and that could be a problem.
But Wiese rejected those claims, telling Business Times this week: “I can say with absolute conviction that this is nonsense.”
“The track record, the price at the time was clearly spelt out. People could compare it [PEP] to the likes of Mr Price, looking at the businesses’ track record and how the business has performed in the two years subsequent to the purchase by Steinhoff,” he said.
“The facts will emerge. It was a fantastic buy for Steinhoff at the time,” Wiese said.
In 2015, Steinhoff bought Pepkor from Wiese for R62.8-billion, but in the last seven months STAR stock has fallen almost 20%, tracking the reputation of its parent company.
STAR reported revenue growth of 13.2% to R58.6-billion in the 12 months ended September 2017.
The retailer’s performance in the past quarter was largely driven by PEP and Ackermans, which, in aggregate, represent 85% of the group’s discount segment’s revenue, with a reported like-for-like revenue growth of 6.5%.
When asked how his reputation has been affected through his Steinhoff dealings Wiese said; “I will speak in due course ... the facts will emerge.”
There is always the risk that Steinhoff may become a forced seller Charles Allen Bloomberg Intelligence analyst