Steinhoff paying the price for Shoprite exit
To what degree will Steinhoff’s share price continue its correction vector? That is the question being asked as the global furniture group’s share price keeps sliding following its decision to walk away from retail magnate Christo Wiese’s integration plans with Shoprite to create an African retail giant.
Steinhoff’s share price is down 10.6% so far in 2017. It retracted 9.2% in 2016.
Steinhoff’s 2016 high of R97 now seems increasingly remote from Tuesday’s R63 as the market grapples with the fallout of Wiese’s takeover plan.
Takeovers tend to present unexpected problems. In this instance, the market was sceptical about Steinhoff’s acquisitions of Mattress Firm in the US and the UK’s Poundland. Some analysts say Steinhoff paid too steep a price for the businesses. Goldman Sachs responded by changing its buy rating at the end of 2016 to neutral, with limited upside potential.
Steinhoff’s quarterly update to end-December failed to inspire confidence as supplychain problems hit Mattress Firm. At the same time, there is uncertainty about Wiese’s next move. It is widely held that he has the retail Midas touch, but this is not always borne out.
Brait is a case in point. Wiese’s personal interest of 35% has shrunk considerably as Brait’s UK assets fell after Brexit. Brait dropped 47.5% in 2016 and is down 11.7% so far in 2017.
Although Steinhoff is not expected to slide that far, further retraction will surely raise questions about Wiese’s business prowess. Ironically, shareholders would have been better off in Shoprite, which has firmed 14% in 2017 after contracting 8% in December, when Wiese announced his plan.
So far, he has brushed off criticism that he intended to divest his interests in SA. But what is clear is that international investors certainly did not warm to his plan to increase Steinhoff’s African footprint.
Wiese will have to pull a new rabbit out of the hat soon.
JSE-listed retailers and mall owners may be somewhat out of vogue as dwindling consumer spending and increased competition start to bite into earnings. But Fairvest Property Holdings, which owns 41 shopping centres in mostly rural areas and townships such as Sebokeng (Vaal Triangle), Nyanga (Western Cape) and Giyani (Limpopo), continues to deliver solid trading figures.
Management’s strategy to focus only on convenience-type centres that cater to lowerincome shoppers has paid off. Fairvest reported dividend growth of 9.6% last week for the six months ending-December – the fourth consecutive year of growth of 10% or more on CEO Darren Wilder’s watch.
Vacancies have been contained at 4.1%, while rental arrears have been cut from more than 3% of revenue two years ago to 1.6%. That’s impressive, given that some larger mall owners are sitting with arrears as high as 10% of rental income.
The large tenants (including Shoprite, Spar, Boxer and Pick n Pay) achieve inflation-beating growth in trading densities.
Fairvest’s share price has rallied 10% over the past month, suggesting that it is starting to appear on investors’ radars notwithstanding its size. ( It has a market cap of only R1.5bn.) Despite the uptick in its share price, Fairvest is still trading at a discount to net asset value of 13% and an attractive dividend yield of about 10%.