Good news, 18.2 billion raised

Steinhoff released the results of the rights issue in which they raised a whopping 18.2 billion Rand. To give you an idea of how much 18 billion Rand is, that is roughly the market capitalisation of Grindrod. Absolutely astounding that the company could raise that much money, there was clearly the appetite there from the local market at 16.58862 rights per 100 shares, at 52 Rand a share. There was enough of a discount, the thought of being diluted in what looks like a good investment was too much for the local investment community to pass over.


The number of shares in issue post the capital raising is now 2 459 880 692. At 53.38 Rand a share you can quite easily see that the market cap is sizeable, bigger than Sanlam, just smaller than Aspen and in 16th place on the ranking tables now. Wow. At the bottom of the market in mid 2009 the market capitalisation of Steinhoff was 17.152 billion Rand. The number of shares in issue was around half of what it is now, 1.28 billion back then, generating half the earnings on a per share basis. Revenues have more than doubled in that time, as have earnings.


What is key is that the makeup of the business has completely changed, this is now a European and United Kingdom business with South African assets held through two different entities, a stake in KAP and almost all of JD Group (around 86.2 percent). If the listing in Frankfurt eventually goes ahead, the company will then be in a position to obtain a higher rating relative to their European peers. Inside of the Dax 30, the blue chip index in Frankfurt Germany there are few comparisons to the business that Steinhoff do.


In the consumer space there is Gerry Webber and Adidas, Puma who make clothing, there are automobile and parts manufacturers in the broader consumer space including ElringKlinger, Continental and BMW, Cewe is in digital printing, there seems to be no other furniture manufacturers and retails. Henkel are close, they make glue, shampoo, detergents and the like, Beiersdorf makes and sells skin care products. And all these businesses trade on much higher earnings multiples than Steinhoff, which has traditionally been quite low relative to the rest of the market here locally.


The only point I am trying to make is that Steinhoff are quite possibly going to take some time to be rerated by a different subset of investors, should they be listed in Frankfurt soon, the point about re-rating with PE expansion is that the Rand price would reflect accordingly, although the leader/follower (Frankfurt/Joburg) would take some time to work out.


In my mind all that Steinhoff have to do now is meet the markets expectations when they report numbers for the full year to end June sometime in early September. Remember that earnings will be calculated on the smaller number of shares in issue from the end of June, a trading statement should be anticipated towards the end of the current month. I suspect that market conditions all being equal, most folks should be positively surprised.