Steinhoff Africa: solid, predictable
Steinhoff Africa Retail (Star) has gained almost 20% since listing in September. In comparison, parent Steinhoff has lost 22% in the year to date as it grapples with tax investigations, soured joint ventures and auditors who won’t sign off on the accounts.
Investors don’t like complexity and in comparison Star’s results were boringly predictable and solid. The company comprises Pep and Ackermans and a collective of smaller brands, including Tekkie Town, Shoe City, Buco (the old Pennypinchers), Incredible Connection, Bradlows and Poco, the German discount furniture store.
Star has provided 12-month pro-forma results because it moved its year-end from June to September in 2016, creating a 15-month year.
For the 12 months to September 2017, pro forma revenue increased 13.2% to R58.6 billion, the operating margin increased by 100 basis points to 10.4% and pro forma operating profit was up 25.2% to R6.1 billion. Of this, R44.1 billion was generated from the discount division, Pep and Ackermans in particular. These businesses grew like-for-like revenue by 6.5%, ahead of inflation.
The speciality division, enlarged by the Tekkie Town footwear, contributed about 25% to group revenue, supported by a strong performance from the clothing, footwear and home retail brands and improved profitability in the do-it-yourself business.
Star expanded its retail presence by opening 272 stores on a net basis. The acquisition of Tekkie Town added 308 stores to the group’s footprint and as of September, Star traded from 4 953 retail locations. It plans to open another 350 stores in the next financial year.
The furniture and appliance business has reached break-even, following the closure of about 300 stores and restructuring.
Other Africa operations (ex South Africa, Botswana, Lesotho, Namibia and Swaziland), contributed about 5% of Star group revenue, all constrained by slower economic growth.
“This is a solid performance from a solid and uncomplicated company,” says retail analyst Syd Vianello. “Investors know what they are investing in. They know the company prints cash.” The company has also confirmed that it has exercised call options to acquire a 23.1% stake and 50.6% voting control in Shoprite.