Steinhoff into Austria, looking to finalise a transaction

There was a fair sized announcement from one of the cheapest looking companies in our market, Steinhoff, yesterday. Voluntary announcement: Agreements concluded to acquire Kika-Leiner. If you want to get a sense of what it is that Kika does, check out their furniture ranges: Wohnen & Arbeiten. All looks good, I am pretty useless with identifying what makes a good couch and what does not make a good couch, I'll leave that to my wife.


The price is not revealed because the deal has not yet been concluded. What I can tell you is that the company has quite clearly decided that the opportunity of acquiring assets in Europe at lower and depressed prices is upon us. That time is now, but also, there is not great rush, they can be patient. Essentially an Austrian business with stores in Eastern Europe with an annual turnover of 1.2 billion Euros. That translates to 15.76 billion Rands at current exchange rate levels. Six month turnover at the last set of results saw the company register 57.292 billion Rands, so this adds around 13-14 percent to annual sales. Of course the most important question is, how profitable is the business and what would the price be? Steinhoff has a market capitalisation of a little over 45 billion Rands, they would have to pay a premium to take the business out, somewhere between 460 to 500 million Euros would probably be a realistic price. Even that sounds hefty!


I suspect that there will be an announcement soon. In the mean time, as the European growth outlook improves this might well be the company to own in the interim. Whilst one waits for that however I can assure you that not everyone thinks that this management team is dynamic and innovative. There are many who think that they sail very close to the wind. I think that discount is applied to the Steinhoff price, which trades at a less than 8 multiple forward. It's cheap! But as they say, for a reason. I suspect that for those with a little more risk tolerance, this is a good way of being in a European recovery trade.