Steinhoff - comment

Pepco this morning alluded to data suggesting Central and Eastern European shoppers will rebound over the next year. Management has sensibly scaled back its store roll-out plan, which should have two effects: 1) more of its over 600 net new stores should mature into profitability and 2) there should be some culling of unprofitable stores as well as a greater focus on margin. We think of this as a problem befalling every fast-expanding retail chain sooner or later and see Pepco well-positioned to address this issuer at an early stage. What it does, however, is signal Pepco’s advancing maturity. So the 15x multiples will likely be hard to attract again.