Steinhoff results

Yesterday we had 6 month numbers from Steinhoff which showed a 48% increase in headline earnings per share. This was expected by the market and came in above the middle of the range given to us by the trading update a few weeks ago. This equated to 166.5c per share compared to 112.8c in the previous six months thanks to revenues of R37.6bn which was up a whopping 123% from the last period.

So why the huge increase? As indicated in the update this was as a result of the integration of the Conforama acquisition and currency swings. This company has lots of moving parts so let's look at their mix to get a better perspective. Revenue per segment looked like this. 65% retail, 17% manufacturing and sourcing, 8% logistics and 10% corporate services. So the majority coming from the retail side but remember that the other segments lead onto the retail side.

From a geographic breakup point of view, here is how revenue looked. 75% Continental Europe, 14% South Africa, 7% UK, 4% Pacific RIM (Australasia). Clearly this is not a South African company anymore. So let's look at what is seemingly the most important region, Continental Europe.This from the presentation. "In sharp contrast to the macro-economic woes of Europe, our retail operations on the continent generated strong growth in revenue and profit. In line with the strategy to focus on margin improvement, Conforama reported good results compared to that of the previous year. A solid performance in France was complemented by growth in Switzerland and Iberia and a satisfactory performance elsewhere.

We continued to invest in the Conforama business by opening new stores, buying franchisee businesses and properties from which we trade. These investments bode well for the continued success of Conforama."

For me this is where the future of the business lies with a possible split between a South African Steinhoff and an International one is my feeling. There are a lot of proposed mergers and deals on the cards involving JD group and KAP. Sasha does a great summary of the details here, but you will still have to apply your brain to understand.

The company looks very cheap from a valuations perspective trading on a PE below 8 if you annualise these results. A value investors dream. I tend to be more sceptical. The market is struggling to understand what Marcus Jooste is up to with the structure of this business. He is a clever man with a big vested interest in the business through shares and his ego. I wouldn't be too worried about that. What I am worried about is their exposure to Europe.

Yes they seem to be doing well with Conforama but in a world of choices why would you want exposure to an economy that is going to be in a mild recession for at least 5 years. We prefer a Richemont who have a much better geographical spread and are milking that Chinese consumer. If they start focusing on that market, maybe I'll give them another look.