Steinhoff - Adjusting for the revised settlement
All,
Please find our updated analysis of Steinhoff here.
What doesn’t kill Steinhoff makes it stronger. That goes as much for the pandemic as it does for the settlement agreement. In January 2020, Management had been looking to sell PEPCO with the discounter’s management hard to incentivize from a quasi insolvent parent. Thanks to Coronavirus, Steinhoff have held on to Pepco’s growth a year longer and voila, it’s added €2bn (even if much less cash).
Revised Grand Settlement:
- The revised terms of the Grand Settlement are now in the model (see the red cells). The result is less exciting than the colour. Assuming the settlement is successful, the SFHG A1s become more constrained by their PIK than by recoveries. However, the SFHG A2s have suffered some five points as they share the value leakage to claimants and Hemisphere with mostly the SEAG A1s.
- The first hearing of the revised settlement is scheduled for beginning of September. At the pace that this process has been running, however, we may have to revise our recovery dates backward - not yet reflected in model, but can be adjusted.
- Just ahead of the grand settlement hearing is scheduled a hearing on the provisional insolvency of the NV. Again, we assign little probability of this challenge succeeding, but we have been surprised before (this July, this court).
Positioning:
- We remain long both SFHG bonds with approx. 5% of NAV each. The former is set to primarily benefit from a successful settlement, while the latter should benefit from further value growth at the group’s European and US subsidiaries as well as recovery of the ZAR, in particular once the SEAG A2s reach par.
Happy to discuss,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003