From loss to recovery prospects
The time seems ripe for bargain hunters to bulk up on property stocks as a number of counters now look cheap
ducted by PWC. The probe — stretching back to 2015 results — continues.
Wiese immediately pulled his then 15.93% stake in Shoprite off the table. While Star attempted to salvage something of the deal in co-operation with Shoprite’s second-biggest shareholder, the Public Investment Corp, that too appears to have died a silent death.
For now it seems it is business as usual for Star, headed by CEO Leon Lourens since December 6. Lourens, Star’s former COO and a 27-year Pepkor veteran, replaced Ben le Grange who returned to his former position as Steinhoff CFO. Four weeks later Le Grange stepped down as CFO to focus on stabilising Steinhoff’s dire liquidity situation.
To a large extent Star has shrugged off its parent’s problems. Star’s share price initially plunged from R26 to R15 following the revelation of Steinhoff’s accounting irregularities but went on to recover to around R21 at present.
But Star is not free of its own potentially damaging problems. Lurking in the background are two off-balance-sheet entities: JD Consumer Finance and Capfin. In its damning report on Steinhoff, Viceroy Research described them as “two loss-making and predatory consumer loan providers”.
Preston says there is a risk that they could come back onto Star’s balance sheet.
Capfin, which provided loans to Pep and Ackermans customers, is the subject of a hearing in the Cape high court into alleged reckless lending.
Consensus forecasts indicate that Star is trading on a forward p:e of about 20 to September. Given the uncertainties and latent risks it leaves Star looking fully priced at best.
The JSE’S real estate sector has had a tumultuous start to the new year — the Sa-listed property index slumped more than 16% in the first six weeks of 2018, which translates to a staggering loss in market cap of more than R150bn.
Though Resilient Reit and its sister companies Fortress Reit, Nepi Rockcastle and Greenbay Properties account for most of the value destruction, other rand-hedge counters have also been hit by what Meago Asset Managers director Anas Madhi refers to as contagion from the short selling that was targeted at the Resilient stable.
The stronger rand and higher interest-rate outlook in the UK and the US have also placed pressure on rand-hedge counters. Blue-chip offshore stocks such as MAS Real Estate, Intu Properties and Hammerson, for instance, have shed between 17% and 24% since the beginning of the year. “Several rand-hedge stocks that previously traded at significant premiums to NAV have rebased to highly attractive levels,” Madhi says. He adds that the drop in share prices hasn’t affected the income growth prospects of these counters.
But it’s not only rand-hedge property counters that are now trading at discounts to NAV. Madhi says several SA property companies are also attractively priced and, in some instances, “ridiculously cheap”.
No fewer than half of the JSE’S 30-odd Safocused property counters are trading at dividend yields north of 10%. That’s despite the uptick in share prices already seen in some local stocks in the year to date (see table).
Ian Anderson, chief investment officer at Bridge Fund Managers, believes local property stocks, which have been largely out of favour for some time, now offer the best value in 20 years. “The yield-spread between government bonds and most Sa-focused property stocks is the highest we’ve seen since 1998,” he says.
Anderson concedes that the current operating environment continues to present challenges for Sa-focused property companies. Many are battling high vacancies amid the continuous addition of new supply — offices in particular. But he says the earnings growth outlook