First and foremost – if you are managing any pension fund money, or other portfolios that don’t have an aggressive mandate, the answer is very simple: No. There is just no information available to make a informed investment decision. But if you have an aggressive mandate, or would like to speculate a bit, Steinhoff International must be on your radar screen.
It is down from its highs of R96 per share to just shy of R3 per share. That is lower than when it listed in the late 90’s. Back then it was a relatively small company, mainly involved in the furniture (in particular beds) manufacturing and sales. These days it is an international conglomerate, with about 12 000 retail outlets worldwide, 26 manufacturing facilities and thousands of employees.
I never held any Steinhoff shares, mostly because I thought that many of the recent acquisitions were overpriced, they did not offer any synergies, I never really understood their accounts and I always had the impression that the ex-CEO, Marcus Jooste would do anything just to bulk up the operations. Infact little was done to create organic growth, and his blessing in the sky came in the form of Christo Wiese, who’s operations were almost the opposite – very cash generative. So Jooste bought even bigger businesses for even higher prices. In short much of the growth was acquired and funded by debt.
But that doesn’t mean that all those businesses are worthless. Some might be worth nothing and should be handed over to business rescue, but some, if not most can be profitable, if not as wildly optimist as stated in there (false) financial statements, and therefore they should be worth something.
Steinhoff International also holds a roughly 70% stake in STAR (Steinhoff Africa Retail), which is a mix of companies from the old JD Group (Incredible Connection, Hi-Fi Coprperation, Unitrans, etc) and Christo Wieses stable (Áckermans, Pep – which are incredibly cash generative). STAR (code SRR) has a market cap of R72bl, making the 70% stake worth R50.4bl. However Steinhoff Internationals market cap is only R11,2bl. Therefore, the market is pricing the rest of Steinhoff a negative R39.2bl. Even with its overpriced properties, and the high debt levels, this is not likely. Add another R10bl of debt due to Steinhoff from STAR, and one gets to a negative valuation of -R49bl – highly unlikely unless the business is hopelessly bankrupt.
One obviously doesn’t know what covenants the Steinhoff debt facilities have, and when they trigger what events. As a fund manager with a long-term view, one would need that know that, or at least that their debt won’t suddenly be called up. But as a short-term speculation, that is the risk one takes for potential high returns.
So, as a speculative buy, Steinhoff looks enticing. Bitcoins vs Steinhoff: definitely Steinhoff.
Always remember that speculative buys should never be more than 5% of your total portfolio, and one should never gear are speculative buy. There is a chance that the investment will go down to 0.