Steinhoff - fundamentals, settlement and positioning
All,
Please refer to our unchanged analysis here.
As consumers have to tighten belts, where can they go? Steinhoff are (operationally) on fire - in Africa, in Europe and in the US. Clearly, the currency movements have been curtailing and obliterating the gains in E-Europe and SA respectively. But supposing the Covid-shy capital has by now left those economies, we see the growth coming through in future periods.
We maintain our 4.5% position in the SFH A1s (old 21/22) on the basis that those should benefit the most from the upcoming grand settlement on February 8th. However, fundamentally, the A2s (old 23s) should have the most to gain from a strong Pepco Poundland IPO.
Similar to results we have been seeing from other discounters across food and apparel, Pepco and Poundland have reported strong performances for Q121 (December). Ahead of the Grand Settlement hearing, Steinhoff are releasing commentary on dusting off the Pepco IPO. Meanwhile results in S. Africa also continue strong (at constant currency), even if the ZAR has, of course, tanked this year. In the US, Mattress Firm is enjoying the tailwind from an increased focus on home expenditures.
Europe:- Both brands are rapidly expanding their store chains, which explains the strong constant currency growth in both segments. - Pepco LfL of +6.6% in open stores: Pepco suffered from Covid related store closures of approx. 12% of “store weeks” within the quarter, which is included in the posted LfL figure. The part of the estate that remained open throughout the quarter posted +6.6% LfL growth, which matches with the remaining figures.- Poundland sees larger basket sizes: Shoppers unsurprisingly consolidated their shopping into fewer errands. The reduced footfall was however more than offset by larger basket sizes, leading to overall positive reported LfL Sales. - It may only be timing related, but the UK retailer’s store growth outpaces its c.c. revenue growth, which sits uncomfortably with the positive LfL figure reported. Still, even if LfL were slightly negative we’d consider it a result. Management estimate the chain may have taken market share during the period.- Poundland also added chilled and frozen food propositions to 32 of their stores, which could be interesting going forward.
From the Q121 trading update:
Explanatory Notes:
1. Q1 revenue as a proportion of the last 12 months’ revenue, based on Q1 FY20 LFL revenue and Q2 to Q4 FY19 total revenue, in order to minimize the distortion from new store growth.
2. Stores designated as Trading Stores, traded for the full seven days within each individual accounting week irrespective of other restrictions including part week closure, limitations on customer numbers and reduced customer offer.
3. LFL revenue growth is defined as year-on-year revenue growth for stores open beyond their trading anniversary.
4. Revenues are unaudited with foreign currency revenues translated at the average rate for the month in which they are made.
5. Year-on-year revenue growth on a constant currency basis.
South Africa:
- Management believes to have taken 2.7% market share in Q121. Growth has been exceeding inflation, in spite and because of the pandemic upheaval.
- Positive c.c LfLs despite Lockdowns: Sales of continued operation (excl. impact of 2020 construction sale) rose 7.7% in constant currency terms, predominantly on the back of Pep and Ackermans, which rose 8.9% or 6.3% in LfL terms - 1.3% above the 5% inflation figure for clothing, foot- and homeware. Both expanded their footprint by 2.1%. The figures seem to roughly compute.
- Specialty: +10.2% with 9.2% LfL.
- Credit Book: +6.7%, pointing to constant credit sales mix - perhaps the one scary bit. Collections were reported as normal.
- Furniture, Appliances, Electronics: +5.8% excluding acquisitions
- JD Group: +9.3% on +10.8% LfL sales on strong trends in technology upgrades and home-office/schooling, due to space reduction of 11% and despite a reduction in credit sales of 7.2% (from 17.5% to 10.3%). JD’s credit book, therefore, remained constant.
US:
Mattress Firm has been reporting extraordinary growth since its restructuring and has benefited from the pandemic. We have not seen Q1 results from Mattress Firm, but believe the business to be very healthy and with excellent growth prospects during and following the pandemic.
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003