Fund managers explain

STEINHOFF: EFFECT TO CLIENTS DEPENDED ON LEVEL OF EXPOSURE

Nedgroup Investments provides some clarity.

On Monday Nedgroup Investments told clients to clarify which of its funds were caught holding Steinhoff International securities on December 6 when the news broke that CEO Markus Jooste had resigned.

It acknowledged these Steinhoff holdings had led to client losses; it had therefore engaged with the managers of each fund. Note their responses.

Reliance on published financial statements

Foord Asset Management, managing the Nedgroup Investments Value and Stable Funds, said its investment thesis on Steinhoff is premised on fundamental analysis of its financial statements “and judgment of its future economic prospects, to determine a fair market value range.

“Foord places material reliance on the accuracy of audited, published financial statements.”

It noted the published statements showed a balance sheet geared at acceptable levels, and that management had structured the debt with enough care to mitigate liquidity risks.

“The allegations of potential historical reporting irregularities are not new and have been refuted by management. As part of our due diligence work, we have also engaged with a respected non-executive director of the Steinhoff group, who has stated that, to his knowledge, there was no financial misstatement, thereby discrediting the allegations. If, however, the audited financial statements were fraudulently or negligently materially misstated, we will reserve the rights of our investors with respect to any remedy that may be available to stakeholders that have suffered loss.”

It’s cheap?

Abax Investments, managing the Nedgroup Investments Rainmaker and Opportunity Funds said: “After publication of an article on Steinhoff in Manager Magazin in Germany (August 2017), concerns arose around a dispute Steinhoff had with a former JV partner ... We engaged an independent legal firm in Germany to advise us on the veracity of the claims and evidence. We engaged with one of the non-executive directors on the supervisory board and this gave us much comfort.”

It said while Steinhoff appears extremely cheap, it’ll not be adding to its position until there’s more certainty.

Too many risks

Electus – managing the Nedgroup Investments Growth Fund – sold out of its entire Steinhoff position.

“Steinhoff has some very good investments … which might underpin the Steinhoff valuation. However, we will not look to hold any Steinhoff shares in the Growth Fund, at least until there are audited financial results and the conclusion of PwC’s independent investigation.

“We suspect that it may ultimately transpire that there has been accounting and tax-related fraud at Steinhoff.”

Holding on

Truffle Asset Management, managing the Nedgroup Investments Balanced and Managed Funds, said Jooste’s resignation and PwC’s investigation into accounting regularities had “significantly changed the risks and return associated with our original Steinhoff investment case”.

“While we have been aware of ongoing litigation involving Steinhoff, the severity of the statement and delay of the audited financial statements surprised us. We have been engaging with company management to improve its corporate governance and general disclosure. We expected … that we would see a significant improvement at the results presentation.”

It added, however, that the current share price means Steinhoff has a market capitalisation lower than the value of its listed assets.

“We have taken the decision to hold our current position at this price level.”