Steinhoff - Bozalek's judgement and Pepco
All,
Please find our unchanged analysis here.
If a pointed challenge fails, it hands the advantage to its target. The same hold true for Steinhoff and its Grand Settlement, emboldening us to hold on to our positions. Meanwhile, Pepco is making progress as planned, except it has €100m extra on the balance sheet.
Bozalek’s Judgement:
- As a correction to our last mail on the subject, and as discussed with a number of you, judge Bozalek only found the CPU to be void as well as the board resolution authorising it. But importantly he ruled tat "In terms of this judgment the SIHPL Guarantee stands and clearly no interdictory relief in relation to it can be granted.” The reasoning effectively boils down to the fact that the board authorising the guarantee in 2014 was also subject to the fraud. The applicants had not made a sufficiently clear case that the board should have detected the fraud at the time and in the context of the wider Steinhoff legislation that case is probably hard to make.
- As such, the ruling that the CPU is void is entirely technical and in a worst-case scenario the 21/21 / CPU creditors would have to amend the UK CVA to find a more suitable structure.
- So it’s a hold-up, probably worthy of no more than a few extra millions (time and fees) to the litigants to allow the S155 process to pass largely unchanged.
=> We, therefore, scrap our previous potential downside scenario, whereby at SIHPL level CPU creditors would rank p.p. with claimants.
Pepco Q3:
Pepco Q3 (to June) revenue was very slightly ahead of expectation on an equally slightly faster roll-out than we dared to assume.
Management implies in its comments that the discounter is able to pass on post-covid cost inflation (supply impasses and transportation) to consumers. The quarter marked the reopening of stores from 1/3 closed at the beginning to fully open by the final week.
Pepco Net Debt:
The cash position of €448m is approx. €100m stronger than we anticipated. Because the company only reports on stores and revenues in the odd quarters, we can only speculate as to the reason, but as the company hints in its press release, it looks like its mostly working capital. Last year the company had a balance sheet cash inflow of approx. €70m on an EBITDA loss of €133m (pre IFRS-16), so that might have been a WC inflow of €200 (again, no quarterly figures available). This year Q3 EBITDA (also not reported) should have been marginally positive - our model has €30m. So a similarly sized inflow this year would tie the figures together.
Positioning:
We continue to hold two large positions in the SFHG A1s - aimed at a successful Grand Settlement and A2s - benefiting from Pepco.
Happy to discuss,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003