Steinhoff - comment

Pepco's preliminary sales for Q4 to September revealed strong growth over last year in a seasonally softer quarter. However, the 1.7% LfL growth at Poundland was disappointing where a sizeable refit program should have lifted growth more. We reckon that inflation should have begun to take hold across the cost structure and margins may go in reverse. As regards the stronger 8% LfL growth of Pepco, we are concerned that the comp quarter would have still had some covid restriction impacts in several of the Eastern European countries it operates in. According to management, however, inflation for apparel goods is running only at 1/3rd of headline figures, suggesting that 8% is still reasonably strong and margins may so far be stable. Store roll-out continues at pace. We have recently shifted our positioning in Steinhoff ahead of next year’s negotiations.