Steinhoff - 25% for the structure alone

All,

Please find our all-new Steinhoff analysis here.

We have moved the old analysis to the shelf where it remains available for reference.

Steinhoff has been a very complex and busy name in the last five years and accordingly, our analysis looked a little worn out with complexities that have been removed or will be less relevant following the restructuring. We have therefore built an all-new analysis with a much simpler entity priority model to make Steinhoff much more accessible to newcomers and veterans alike. The name has de-risked substantially and even though there will be some more news flow throughout the rest of the month, we think it is worth another look now (has been for a while).

Investment Rationale:

- We remain exposed to the SEAG A2s with approx. 4.5% of NAV. 13% of that position or 0.5% of NAV will be converted into B2.2s. Steinhoff has been a very good trade for us and promises to continue so as the structure becomes simpler and ever more transparent. 

- The combined market value of the various debt instruments at the holdcos still trades with approx. a 15 cents discount, offering 25% return only on normalisation of the capital structure - never mind any equity returns on the assets.

- The various debt instruments are merely slicing what would ordinarily be equity in the underlying companies, which are altogether well run and up for disposal in the coming years. Meanwhile, leverage at the opcos is contained.

H123:

- Today’s H123 report holds a lot of detailed information that is worth combing through in a quiet moment, but given the extensive disclosures in the context of the now freshly homologated restructuring, we are not seeing much in the report to change any of our analysis. 

- All three major subsidiaries continue with strong results:

- Pepco recently had slightly softer results than expected, but reiterated guidance credibly for the remainder of the year. The company continues to roll out new stores at a pace of 10% p.a. on top of positive LfLs across the European continent. Poundland is shrinking slightly, reflecting the sickly UK economy.

- Pepkor have been struggling with floods and riots, but are posting 3% of growth above inflation and adjusting for the acquisition of its Brazilian business.

- Mattress Firm’s performance has been falling less than expected since the pandemic boom. The business is subject to an attractive bid from its largest supplier Tempur Sealy. 

Looking forward to far simpler conversations on this name.

Wolfgang

E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk