Strategic trade
Trade view / 18 April 2016 at 10:02 GMT

#SaxoStrats: Could Steinhoff become 'Africa's Ikea'?

Head of Equity Strategy / Saxo Bank
Denmark
Instrument: SNH:xjse
Price target:
Market price:
 
Theme

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.

Steinhoff

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank 

Valuation

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.

Steinhoff
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.

Parameters

Entry: buy Steinhoff International (SNH:xjse) at market.

Stop: stop at 8.459 (volatility based) with a step size of 62.

Target: 15,000.

Time horizon: one year.

— Edited by Michael McKenna

For more on equities click here.

Non-independent investment research disclaimer applies. Read more

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail