South African global champion Steinhoff International is being overlooked by investors. That offers a great opportunity to those who seek a long-term bet. Here’s why.
Its December 2015 primary stock market listing switch to Frankfurt attracted lots of initial interest, driving the share price to a peak of R95. But a year ago it started sliding back into the mid-R60s a year ago, hitting the stock market’s equivalent of the doldrums – a band in the equatorial Atlantic Ocean where little wind blew, becalming sailing ships of yore.
This share price stagnation occurred despite a solid set of financial results for the half year to end March (organic sales up 9%; organic EBIT up 21%) showing continued growth, the underlying business with 413 new stores taking the total to over 12,000 in 30 countries.
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Prime reason for investor hesitancy is what has become known as the Amazon-effect. When Jeff Bezos’s creation bought Whole Foods, other grocery stocks fell sharply. When Amazon moved into food parcels, recently listed Blue Apron tanked. News that Nike had agreed to sell its products through Bezos’s giant sent share prices of sports chains tumbling.
This Amazon-effect has become so powerful that investment analysts at Wall Street firm Morgan Stanley have produced a report highlighting retail sectors where the Bezos behemoth is unlikely to reach. It contains some good news for Steinhoff shareholders.
Among the few sectors identified immune to the Amazon-effect, MS says, are retailers selling products which lend themselves less to ecommerce – items with a lower profit margin, less frequently ordered and bulkier. The analysts concluded that auto parts, dollar stores and home furnishings enjoy this immunity.
In its end-March interims Steinhoff reported that by turnover it is now the world’s third largest “integrated household goods retailer.” In other words, the core business is furniture and homewares; with the other big focus on low end general merchandise (“dollar stores” including in its case Poundland). Both areas are smack bang in the Amazon-immune category.
Once the global investors start refining their filters, this attribute is sure to enhance Steinhoff’s appeal.
For South African residents the attraction is enhanced by its substantial Rand hedge status. The latest financial results show three quarters of Steinhoff International’s revenues are now generated in hard currencies – 53% in Europe and the UK; 15% in the USA and 6% in Australasia. That’s going to become 100% when the group’s African retail businesses are spun out as a separate listing sometime between now and end September.
Those bull factors – Amazon immunity and global exposure – together with the stagnated share price and the excitement of an unbundling tells us opportunity is knocking pretty loudly right now for canny investors. Steinhoff is a member of our SA Champions Portfolio. You should consider it too.
