Steinhoff is the second-largest household goods retailer in Europe (after Ikea) with annual revenue of €12 billion. The furniture retailer has grown its revenue by around 30% annually since 2010 driven by strong organic and acquisition growth.
Our strong positive view on Steinhoff is driven by the retailer’s aggressive acquisition strategy and subsequent high growth in key markets in Africa and Asia where Ikea is weaker. We are buying into the idea of Steinhoff building “Africa’s Ikea”.
The recent Frankfurt stock listing will increase its international awareness likely leading to higher valuation trailing the industry group. The firm's H1'16 result in March showed strong performance with notable margin expansion across most of Steinhoff’s businesses.
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Source: Saxo Bank
Despite high revenue growth rates and expanding margins in addition to high exposure to future growth markets, the 12-month forward P/E ratio is only 15.8x compressed by its EM characteristics.
However, the low valuation is 36% lower than global retailers and as such there is massive potential in a revaluation of Steinhoff’s shares.
We believe the recent Frankfurt stock listing could be a significant driver of this. Steinhoff has also controlled its net debt situation in its acquisition phase which the market has not rewarded.
Source: Saxo Bank
Management and risk description
Key risks include a stronger EUR against African (especially ZAR) and Asian currencies, increasing competition in key markets (Africa) from Ikea, and the firm's H2 result on September 6. Also watch for an economic slowdown in Southern Africa and Asia.
Entry: buy Steinhoff International (SNH:xjse) at market.
Stop: stop at 8.459 (volatility based) with a step size of 62.
Time horizon: one year.
— Edited by Michael McKenna
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