Pepkor difficult to price in shadow of Steinhoff
General goods retailer remains a difficult company to value despite putting out solid numbers for the three months to December
General goods retailer Pepkor, formerly known as Steinhoff Africa Retail, on Monday released solid numbers for the three months ended December despite challenging trading conditions.
Pepkor, which has troubled retailer Steinhoff International as a 71% shareholder, reported sales growth of 6.1% for the quarter. But given its connection to scandal-plagued Steinhoff, the market was still struggling to figure out how much it was worth, said Sasfin Bank senior equity analyst Alec Abraham.
Abraham said though Pepkor’s latest sales numbers were reasonable, its connection to “Steinhoff still loomed over it”. Figuring out what it is worth was not easy because investors could easily end up paying too much or too little, depending on the findings of the investigation into the group, he said.
When the problems at Steinhoff came to light over a year ago, Pepkor’s share price collapsed from R25.40 to a low of R15.11 in a matter of days. It has since recovered to R20.10, giving it a market cap of R69.34bn and a price-earnings of 23.53.
Accounting firm PwC is conducting a forensic investigation into the serious accounting irregularities at Steinhoff.
Steinhoff got its holding in Pepkor when retail magnate Christo Wiese sold his stake for R62.8bn in 2014, making it SA’s largest corporate transaction.
Pepkor said it increased revenue 6.1% to R19.5bn for the quarter. Its low-income chains Pep and Ackermans reported sales growth of 6.8% and like-for-like sales growth of 2.7%.
Abraham said tough trading conditions benefited Pepkor and chains like Pep and Ackermans as people tended to “shop down” when they were under financial pressure. “They tend to choose function over fashion.”
The difficult economy could be seen in the performance of its furniture, appliances and electronics chains, which reported sales growth of 0.6% and a decline in like-for-like sales of 2.7%.
“Overall, Pepkor’s defensive market position and strategy of providing customers with value at affordable prices continue to resonate with a financially constrained consumer. It is expected that these Pepkor fundamentals will continue to support future performance in a very challenging retail environment," it said.