The Finance Ghost: Steinhoff, Mpact or Shoprite – who is the Grinch?

By The Finance Ghost

18 Dec 2022

Could someone please let Steinhoff know that December is a time of giving, not taking away?

It was in December 2017 that the proverbial hit the fan for the first time, when Markus Jooste resigned and the market realised that Steinhoff’s financials were about as dependable as Transnet Freight Rail.

Five years later, there’s a drop of 64% in the share price in a single day based on an update that makes it clear that there isn’t much equity left in this thing.

It doesn’t matter how well Pepco is doing in Europe. If the holding company structure is drowning in debt, then those assets are more likely to end up belonging to the banks than to the equity holders.

The choices here are harsh. If shareholders agree to the extension of the debt to 2026, they will retain 20% of the economic interest in the company and the lenders will own the rest.

If they don’t agree, then “shareholders will no longer have any interest in the group”.

It gets worse. The restructured economic interest (assuming shareholders vote in favour of this horrific outcome) will be in the form of an unlisted equity interest. Steinhoff expects its ordinary equity to be unlisted when all is said and done.

I’m not sure who was buying this thing on the way down on Thursday, 15 December. For anyone other than an institutional investor with the financial clout and legal skill set to fight for reasonable rights in an unlisted environment, these shares are now worthless.

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A sweet investment

In some good news for the South African economy, Mpact has decided to invest R1.2-billion in the Mkhondo Paper Mill in Mpumalanga.

Shareholders will need to be patient as a project of this size takes time to complete. The expected commissioning date is 2025 and Mpact expects an internal rate of return of more than 20%.

The project will be funded through a combination of internally generated profits and debt, with the company guiding that borrowings will peak in 2024.

Slump in home improvement

With consumers facing every inflationary pressure imaginable, higher bond repayments and rising interest rates, there simply isn’t enough money lying around for major home improvement projects. If you throw Eskom into the mix and the depression it causes among consumers, the willingness to improve our homes disappears.

Against this backdrop, Italtile is in trouble. In the five months to November, the retail division has only achieved a 2.3% increase in sales. The manufacturing division has achieved some volume growth, with sales up 7.8%. It’s difficult to imagine how the share price does well from here.

Lump of coal under Shoprite’s tree?

I’ve never understood why Shoprite is buying the heavily loss-making Cash & Carry stores from Massmart. I appreciate the benefit of securing the sites, but the reality is that these stores were heading for closure anyway. Why not just wait until they collapse and then open a store in that area?

As one of the best retailers on the continent, Shoprite must have its reasons. After the Competition Commission finally ruled on this deal, it can apply those reasons to most, but not all, of the desired stores.

Fifteen stores need to be excluded from the deal, which means Shoprite has the green light to acquire 42 Cambridge Food and Rhino Cash & Carry stores, two Fruitspot facilities, the Massfresh meat business and 12 Masscash Cash & Carry stores.

Let’s hope that Shoprite finds a way to make it work. DM168

After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.

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A sweet investment

Slump in home improvement

Lump of coal under Shoprite’s tree?