Newly listed company Star will be included in the JSE Top 40, and will be larger than Woolies and Mr. Price.
The core of the newly listed company Star is made up of the Pep and Ackermans brands, Pep being the biggest of the two. Combined, the brands represent 95% of the business in value. So, when you buy the share, you are essentially buying Pep and Ackermans, and all the other store brands are added value that could grow in the future. Ackermans and Pep together give the company 40% of the children’s clothes market and 66% of the Baby clothes market.
The other 5% of the Star business is represented by speciality products such as electronics and furniture. The management of the company also point to the financial services offerings as profit boosters for the company; this will include money transfer services, airtime sales and short-term financing solutions.
In the middle of the listing price range (R20.50 per share) the market capitalisation will be R70 billion, which will make it the 33rd largest company on the exchange, just behind Tiger Brands Ltd of roughly R71 billion. This means Star will be included in the JSE Top 40 and will be larger than Woolies and Mr. Price.
Shoprite Call Options
The Shoprite Call Options gives Star the right to buy 24% of the issued shares which will also give them more than 50% of the voting rights of Shoprite. The competition approval process would be triggered should Star acquire the 24% stake. The company’s management is positive that the process will be completed by May/June 2018.
Acquiring the stake would mean that Star will take over Shoprite’s furniture businesses, and in doing so, increase the margins of the combined businesses. There is also considerable scaling and sourcing opportunities for combined entities in the longer term.
What does the unbundling mean for Steinhoff shareholders?
SNH shareholders will not be diluted in any way, but Steinhoff will only own 51% of Star. So, if investors do want more exposure to the Pep and Ackermans unit, they should consider adding some Star shares to their portfolio.
What does the unbundling mean for Shoprite shareholders?
From a share point of view, there will be no changes in the structure or assets of Shoprite. There could be some management changes at the company, however, since Steinhoff will be the controlling shareholder. I do believe that the Star store brands will leverage on Shoprite’s position in being the anchor tenant in major shopping malls, getting better leasing terms and better strategical locations in shopping malls.
Steinhoff will own 51% voting rights of Steinhoff African Retail Assets (STAR) and Star will own 51% of Shoprite Holdings Ltd, so ultimately Steinhoff owns Shoprite and Christo Wiese got what he always wanted, to consolidate his interests.
Steinhoff Africa Retail (Star) will list on the main board of the JSE on the 20th of September and will be offering just over 23% of its shares in a private placement to investors. The shares will be priced between R18 and R23 per share, with a total market capitalisation of between R62 billion and R79 billion.
The newly listed entity will trade under the share code SRR and will fall under the Broadline Retailers sector of the JSE.
The Steinhoff brands that will form part of the newly listed company are:
- Pepcor Africa - This will include PEP South Africa and PEP Africa.
- Poco - A new concept homeware, furniture and DIY store with locations in Strand and Sandown, Cape Town.
- Russels - The discount furniture store with over 300 locations nationwide. The company allows customers to pay off the furniture in monthly instalments, at a high rate of interest.
- Flash - An electronic payment technology for entrepreneurs in the informal retail environment, with a lot of growth potential in South Africa and the rest of Africa.
- Ackermans - A value clothing store that also offers homeware and cellular items. There are over 500 store locations in South Africa, 23 in Namibia and 6 in Botswana.
- Bradlows - A furniture and appliance retailer positioned in the middle- to upper-value segment.
- Other - Other store brands include Rochester, Buco, Timbercity, The Tile House, Incredible Connection, HiFi Corp, Dunns, John Craig, Refinery, Shoe City and Tekkie Town.
The Group’s reported revenue is over R51 billion, making it one of the largest retailers in Africa, but this is still far less than Shoprite’s reported revenue of R141 billion in 2017. The company has entered various agreements to take a significant shareholding in Shoprite in the longer term through call options. I believe the longer-term plan is to merge the two entities to form the largest retail conglomerate in Africa. The Star listing comes after merger talks between Steinhoff and Shoprite earlier this year failed.
Star will remain a subsidiary of Steinhoff and will continue to benefit from the group’s sourcing and scale advantages according to the pre-listing statement released on Monday, the 4th of September.
I believe the separate listing of Steinhoff’s African retail assets will be of great benefit for the share price of Steinhoff. International investors who feel cautious about emerging markets and our current political climate will feel comforted by the fact that it is a separate listing.
Analyst and Securities Trader
Daniel is a full-time analyst and securities trader, and is responsible for equities research across industries. Although he grew up in a small town in the Klein Karoo, Daniel has always been interested in both locally and internationally traded companies. Daniel has been actively investing and trading on the JSE and other global exchanges since starting his Bcom Investments Degree at the University of Stellenbosch, which he completed in 2014 . During his studies, Daniel worked as an intern at Kruger International in Johannesburg in 2015, gaining valuable experience from Hein and Mia Kruger. He is currently a CFA candidate.