Breaking news regarding Steinhoff financial irregularities here!!!
Background and overview of Steinhoff International Holdings (SNH)
STEINHOFF is an integrated retailer that manufactures, sources and retails furniture, household goods and general merchandise in Europe, Australasia and Africa. A brief overview of their operations include:
Household Goods:
General Merchandise:
Automotive Industry:
Household Goods:
- Makes up 73% of operating profit
- 2362 Retail outlets
- 3.8million square meters of retail space
- 61 000 employees
General Merchandise:
- Makes up 25% of operating profit
- 4416 Retail outlets
- 2.1million square meters of retail space
- 39 000 employees
Automotive Industry:
- Makes up 2% of operating profit
- 88 Dealerships
- 47 Retail Outlets
- 5 000 employees
Steinhoff International Holdings Income Statement Funnel Chart:
From the funnel chart its clear that SNH earns a pretty decent chunk in profits from their revenues (size of green bar relative to the blue one). Their net profit margin is sitting at close to 10% which is very strong. So essentially for every R100 received in revenues, they take almost R10 home as net profits.
Financial review:
The graphic below shows the contribution of some of SNH's operating divisions to both their revenues and operating profit.
As can be seen from the pie charts Steinhoff's Household Goods division is by far the biggest contributor to both their revenues and operating profit. With it making up almost 75% of operating profit. The automotive industry they are in seems to be the weak link, with it only bringing in 9% of revenues and only contributing 2% to operating profit. Seems hardly worth their while?
The map below looks at SNH's revenues on geographical level:
The map below looks at SNH's revenues on geographical level:
The graph below looks at SNH's operating profits on a geographical level:
What is clear from the two maps is the fact that most of SNH's revenues (59% of it is earned in Europe, while 74% of their operating profit comes from this region). It is therefore by far their most important geographical area. Seems Australasia is struggling. It only contributes 7% to their revenue but makes up only 1% of their operating profit.
When their results are reported in Rand terms it will look extremely strong (as continued Rand weakness will have this effect. See Rand/Euro exchange rate here). As money earned outside of South Africa is reported in Rands and the Rand continues to show weakness, the reported Rand results will benefit from the weakening exchange rate.
Earnings per share came in at 17cents (in Euro's) for the 6months. This works out to roughly R2.90 a share. So if the 2nd 6months delivers the same they will get full year earnings around R5.80 a share. Putting SHN on a forward PE ratio of 16.5. Its not that high considering the company's extremely strong track record. Strong footprint in Europe and South Africa. They have strong cash generation capabilities too, with them generating 802million Euro's in cash from operating activities in the 6months ended 31 December 2015. That works out to around 1.6billion Euros cash generated and per share thats about 41c (in Euros) or almost R7 a share in Rand terms.
When their results are reported in Rand terms it will look extremely strong (as continued Rand weakness will have this effect. See Rand/Euro exchange rate here). As money earned outside of South Africa is reported in Rands and the Rand continues to show weakness, the reported Rand results will benefit from the weakening exchange rate.
Earnings per share came in at 17cents (in Euro's) for the 6months. This works out to roughly R2.90 a share. So if the 2nd 6months delivers the same they will get full year earnings around R5.80 a share. Putting SHN on a forward PE ratio of 16.5. Its not that high considering the company's extremely strong track record. Strong footprint in Europe and South Africa. They have strong cash generation capabilities too, with them generating 802million Euro's in cash from operating activities in the 6months ended 31 December 2015. That works out to around 1.6billion Euros cash generated and per share thats about 41c (in Euros) or almost R7 a share in Rand terms.
Valuation
Based on SNHs financial results, the markets they operate in and the economic environment they find themselves in, we value their shares at between R98 and R100.60 a share. We therefore think it is close to full value, but potential buyers should look to add the share to their portfolio or add to current holdings if/when it dips below R90 a share.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in questio
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in questio