Ann Crotty Writer-at-large
Waiting: PwC is probing an accounting scandal at Steinhoff.Picture: BLOOMBERG
Waiting: PwC is probing an accounting scandal at Steinhoff.Picture: BLOOMBERG

Nedbank Private Wealth is the latest fund manager to tell clients hit by the collapse in the Steinhoff share price that the calibre of the board directors encouraged it to invest in the retail group.

"We drew comfort from the fact that many highly regarded individuals with strong track records served on the group’s supervisory board," the fund manager said in a note to clients last week.

Shortly after Steinhoff’s dramatic announcement in early December of an investigation into its accounting practices, Korner Perspective issued a research note telling clients that one of many factors giving it comfort in the months leading up to the share price crash was, "a highly competent and experienced supervisory board of directors with six highly experienced chartered accountants on the supervisory board".

On December 20, Standard Bank Group Securities told its clients: "The company’s auditors and supervisory board have clearly failed dismally to discharge their statutory duties."

To date, no South African fund managers have referred to the possibility of taking legal action against Steinhoff or its directors. Most are still waiting for the results of the PwC investigation to determine the extent of the accounting scandal and who was implicated. However, the fact that investors were encouraged by the calibre of the board members have implications if legal action is pursued. The new Companies Act, which came into effect in 2011, requires directors to perform their functions in line with their skills and experience. This places a higher burden on skilled and experienced directors such as those on Steinhoff’s board.

In the note sent out last week, Nedbank Private Wealth told clients why it had invested in Steinhoff. The reasons included it being Europe’s second-largest furniture retailer, which would benefit from the superior sourcing scale and purchasing power resulting from its aggressive merger and acquisition activity.

Based on publicly available information, Nedbank Private Wealth believed there was further potential to unlock value via its European property portfolio.

Steinhoff also provided attractive exposure to Pepkor.

Nedbank Private Wealth believed the share price offered an adequate margin of safety. It was encouraged in this belief by the calibre of directors on the Steinhoff board. "We believed that these board members would have the expertise and fortitude to question any actions that were not in the interests of all shareholders, particularly minority shareholders," said Nedbank Private Wealth.

The fund manager said that before 2017, Steinhoff’s annual financial statements had been approved by its auditors without qualifications. "Audited financials, that should reflect the true financial picture of a company, are a key input in our investment decision-making process. There was no evidence at the time to suggest that we couldn’t believe the validity of what was being presented to both us and the market," it said.

Nedbank Private Wealth, Korner Perspective and Standard Bank Group Securities have all adopted a wait-and-see attitude. While they acknowledge the continued high levels of uncertainty, they are not sellers at the current low levels.

Standard Bank Group Securities said that an orderly restructuring would greatly increase the chances of realising reasonable underlying value for Steinhoff shareholders.

crottya@bdfm.co.za

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