Steinhoff 1Q update - things still unclear


Yesterday after the market closed, Steinhoff released its Quarterly update, for the three months ending 31 December. Meaning the post-implosion period only accounts for three weeks of these numbers. The first thing I looked for was an update of when PWC would release their findings.


Steinhoff tumbles


Whoa! Last night Steinhoff announced that Markus Jooste has stepped down as CEO (Steinhoff announces investigation into accounting irregularities and resignation of CEO), with Dr Christo Wiese taking up the role of Executive Chairman on an interim basis.


Steinhoff 9m numbers - strong growth


Thanks to their positive nine-month sales update, Steinhoff stock closed 2.6% higher. The company has been very busy in terms of purchases in the UK, US and Australia and many new store openings in all their regions. They have seen a 48% increase in sales to EUR 14.9 billion for the nine months, with 8% organic growth. Here is a breakdown of how that EUR 15 billion in sales is split:


Steinhoff gets controlling stake in Shoprite


Minutes before the market closed on Friday Steinhoff released two SENS announcements, updating us on the listing of their African assets and telling us that they are in the process of getting enough votes to control Shoprite. The new entity is called STAR (Steinhoff Africa Retail) and should be listed by the end of September. Have a look at the comprehensive list of brands currently owned by Steinhoff, always nice to get a refresher:


Steinhoff 6m numbers - making progress in the US


Last week we had 6 month numbers out of Steinhoff, who are the world's third-largest integrated household goods retailer by turnover (Half year numbers). Given how active management are, it is difficult to get comparative numbers, but based on managements calculations normalized revenues are up 7% and normalized EPS is up 4%. Here is a look at breakdown of the group sales:


Steinhoff 1Q numbers - bedding down acquisitions


Steinhoff numbers yesterday morning (and afternoon), this was for the quarter ending December 2016. This is a 300 billion Rand market cap business, sizeable indeed. Of course the business is now listed in the Frankfurt, this is the secondary listing down here. I think that access to cheaper capital and growth in emerging market (as well as looking for opportunities in developed markets) is more important.


Steinhoff and Shoprite tie up


Since Christo Wiese made the comments that he thought that Shoprite and Steinhoff was some sort of natural fit, the share price of Shoprite has outperformed the rest of their retail peers. Since Steinhoff released their results last Wednesday, the stock was up over 17 percent. That was all as at yesterday morning. And then basically around lunchtime, 12:30 to be exact, a release with some clarity as to what is likely to transpire (for Wiese at least) with the two companies hit the screens. Here it is - Steinhoff/Shoprite - Joint detailed cautionary announcement relating to the establishment of African retail champion.


Steinhoff numbers - beat expectations


The Hoff is back in town, sans red budgie smuggler and lifesaving plastic device thingie. No automated car either that speaks into a wearable device (come to think of it, Knight Rider was way ahead of it's time). Talking watches (Siri and her users) and self driving cars, those exist today. Turbo boost = ludicrous mode. I told you, that Hoff is a legend. Actually, Glen A. Larson, who also created Buck Rogers and Magnum P.I. is the legend.


Steinhoff buying Fantastic Furniture in Australia


Another stock of ours making an announcement on Friday was Steinhoff. Sorry, Steinhoff International, that is their "new" name. The stock has not been listed for a year yet on the Frankfurt stock exchange, in December it will be a year. Since all the various deals have been announced, the stock really has come under pressure, down nearly one-quarter of their market cap in Euros. They are paying a heavy price for the Mattress Firm (2.4 billion Dollars) and gobbled up Poundland. The strategy is simple, the company will continue to do deals at the value end of the market (for the consumers) and create a global retail titan. Marcus Jooste will continue to be aggressive, with the backing of their biggest shareholder and chairman, Christo Wiese.


Steinhoff raising funds


The other big news on the local front is that Steinhoff have announced that they are issuing shares to a number of parties in order to raise a whole lot of money, in order to shore up cash reserves. The logistics are easy enough to understand, just lean in a little closer to understand the different legs. Firstly, Upington Investment Holdings (a business controlled by the trust of Christo Wiese, who is the biggest shareholder of Steinhoff) will subscribe for 162 million new shares at 5.055 Euros per share (higher than where the stock price traded yesterday). Total proceeds of that, 819 million Euros. Next up, an empowerment deal for 60 million shares with a vehicle called Lancaster 101, facilitated by The Public Investment Corporation (the PIC). That will raise 303 million Euros, same price of 5.055 Euros per share, I am sure there will be more detail in due course.


Steinhoff - Revenue up, EPS down


OK, it is time that we review those Steinhoff results. Firstly, it is important to recognise the massive transformation of this business over the last half a decade, from Conforama in Europe to Pepkor across the globe, the company has been ambitious and has definitely pushed the envelope. Should that worry you? I guess that if one of the richest South Africans has basically thrown in his biggest asset in here and is the biggest shareholder, then he has done his due diligence. I am of course talking about Christo Wiese, who in his mid seventies has decades of retail experience. He has thrown in his lot with Steinhoff, Brait and of course various others that include Shoprite (of course), Invicta and Pallinghurst. To mention a few, there are more, that Wiese fellow is a warrior.


FY Financial update - strong revenue growth


Steinhoff released their Unaudited financial update for the year ending 30 June this morning. The numbers look strong with a 33% growth in Revenue (now stated in Euro's) and a 32% increase in operating profit. From a global diversification point of view, 68% of their revenues come from Europe and Australasia, with the remaining 32% coming from Africa. If their purchase of the US based Mattress Firm goes through they will add even further diversification to their revenue streams. The large purchase of PepKor looks to be doing well, with constant currency revenues up 19%. Given all the moving parts with their acquisitions, issuing of new shares and taking on more debt we will have to wait until the 7 September to see the exact impact on EPS.


Steinhoff moving into the USA


There was an FT article (that Bright alerted us to) over the weekend, indicating that Steinhoff were looking to make a go for US retailer - Steinhoff targets US with $3.8bn deal for Mattress Firm. Subscription only, sorry, that FT. The official release from Mattress Firm is here - Mattress Firm To Be Acquired by Steinhoff International for $64.00 Per Share in Cash. They continue to "bed" down deal after deal. They are looking to get into bed with majors across the globe. Steinhoff continue to acquire where they see value. Whilst this seems an excessive price (and it is), the stock is trading today at the same price as in January 2012. The premium is where the stock traded at in October 2014, same price. Since then the going has been tough.


Steinhoff looking to buy Poundland in the UK


And then another set of news from Steinhoff, I saw somebody calling it "third time lucky". What? In the falling away from the Darty deal, in which FNAC prevailed, Steinhoff owned so many shares and were bought out at the higher level. Meaning that shareholders extracted a pretty sizeable and unexpected gain. So why would that be considered "unlucky"? Anyhow, Darty is gone, the group are making a go for a smaller UK listed company called Poundland. The first announcement is where Steinhoff "confirms that it is considering a possible offer for the entire issued share capital of Poundland."


Steinhoff in bidding war for Darty


What is going on at Steinhoff? And more specifically, why are they involved with a business called Darty? Darty is a London listed, mostly French business, that seems (as per their website) to sell all sorts of household products from computers and electronics (including photography) to household appliances, garden equipment, about everything a home needs. The last six month results (HY results 2015/16 announcement) saw a very marginal sales increase. The stock back then had just risen as another French business that is similar, FNAC, made a scrip (shares) offer to Darty shareholders. A month ago, Michael gave a rundown of what was happening -> Steinhoff buying Darty, drops HRG.


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