Five years ago, Steinhoff was small fry.

Its revenue of €3.8bn was not even enough to place it among the world’s 250 biggest retailers. Now in the mega-retailer league, the group in its year to September 2017 is on track to generate revenue of at least €20.5bn, a level that would have ranked it 48th in Deloitte’s 2016 "Global Powers of Retail" survey.

It is an amazing growth story that speaks of Steinhoff CEO Markus Jooste’s unswerving goal of building scale in a global retail market where that is the name of the game.

But for the group — which now has a footprint of more than 11,000 stores in 32 countries — it has been a growth story punctuated by recurring bouts of scepticism from the market. In the most recent, between March and November 2016, Steinhoff’s share price was hammered over a third lower and its rating reduced to an unflatteringly low p:e of 12.5.

The first bout of scepticism followed Jooste firing the first salvo in his quest for mega-retailer status by acquiring French furniture retailer Conforama in January 2011 for €1.2bn.

"Jooste has taken on more than Steinhoff can handle," was the general tone of market comment.

Steinhoff’s rating had slumped to a bargain basement 7.7 p:e by June 2011.

The next big bout of market shock came in March 2015, when Steinhoff made its move on Pepkor, acquiring it for R62.8bn (then €4.8bn) from Christo Wiese and his listed holding company, Brait. By valuing Pepkor on a heady 37.4 p:e, Jooste had overpaid, went up the cry.

But to get scale, paying up can be the right strategy. For Steinhoff, Pepkor was the means to gain instant entry into the discount clothing and general merchandise sectors through a footprint now spanning more than 4,750 stores in 18 countries. Steinhoff also gained a company that has just produced its 17th consecutive year of double-digit profit growth.

The trashing of Steinhoff’s share price in 2016 was in one way related to Pepkor.

When results for the 12 months to June were released, the market was shaken by a sharp fall in Pepkor’s growth in its key SA market in the second six months.

Investors had again overreacted. In the three months to September (Steinhoff has changed its year-end to September), Pepkor’s SA sales roared upwards to produce a like-for-like store sales increase of 7.9% in a market in which its competitors were reporting negative trends.

"It was a fantastic showing," says Rob Forsyth of Investec Asset Management.

Performance was also exceptional across the full Pepkor operation, with the September quarter reflecting constant currency sales growth of 26.3% year-on-year compared with 19.5% in the year to June. In Eastern Europe, another pivotal region for Pepkor, like-for-like sales grew 20% in the September quarter.

Market jitters weighing Steinhoff down in 2016 were not confined to Pepkor’s SA operation. It was also a year of frenetic corporate activity, not all of it to the market’s liking at the time deals were struck.

But 2016 was going to be the year Steinhoff moved for the first time since the Pepkor deal to pursue its strategy of scaling up aggressively.

Not all its moves were successful, though.

In March, Steinhoff abandoned its £1.4bn bid for UK group Home Retail in the face of competition from Sainsbury’s. It also walked away from a bidding war for French-based electronic goods and appliance retailer Darty, conceding defeat to rival Groupe Fnac.

But Steinhoff made no slip-ups with UK single-price retailer Poundland, bagging it in September for £587m. Poundland adds annual revenue of about £1.3bn, but not much by way of profit after a 94% slump in net income in its year to March. What Poundland does offer Steinhoff is a footprint of 874 stores in the UK and Ireland.

For Pepkor, which has opened only 54 stores under its Pep&Co and GHM brands since entering the UK in 2014, Poundland brings scale. Moves are already being made to alter Poundland’s single-price format, which may in turn herald a mass rebranding of its stores. "We have introduced apparel and footwear into 10 of Poundland’s bigger stores," Jooste noted at a results presentation. "The test has gone exceptionally well."

Jooste’s really big surprise for the market came in August, when Steinhoff made its entry into the US through the acquisition of specialist mattress retailer Mattress Firm for US$2.4bn.

It was another move that delivered instant scale. The US’s biggest mattress retailer, Mattress Firm, has an impressive footprint of more than 3,500 stores in 49 states, and with annual sales of $3.85bn, a 28% share of the fragmented $14bn speciality mattress market.

Mattress Firm also has the makings of the start of far bigger things for Steinhoff in the US. Beyond its national footprint, Mattress Firm also brings with it a network of 75 distribution centres.

These could well provide the foundation for Steinhoff’s entry into the US’s $95bn annual sales furniture market, in which no retailer has a share of more than 3%.

Jooste is not saying anything beyond: "I am very excited about our future in America."

But again, the market was concerned that Steinhoff had overpaid for Mattress Firm. The $2.4bn price tag represented a 29 p:e — more than twice its prebid level.

The market’s argument was that it was too much to pay for a company whose gross operating margin had fallen from 40% in 2014 to 31.7%. Seemingly ignored was that Mattress Firm itself has been through a period of rapid acquisitive growth.

First came two medium-size deals in 2014. These were followed in January 2016 by a major deal in which 1,065 stores and sales of $1.13bn were added through the acquisition of Sleepy’s.

Jooste acted to allay concerns in his letter to shareholders in Steinhoff’s 2016 annual report. Once the integration and rebranding of Sleepy’s is completed in 2017, focus will swing to driving supply chain efficiency, market share and margins, he stressed.

The market has liked what it’s being told and has seen in the September-quarter results. It has again turned pro-Steinhoff, ramping its share price 18% higher in the first half of December. It has also lifted the group’s rating to a 14.8 p:e, an undemanding level that allows for further strong upward movement of its share price.

For now the market is also unlikely to have to digest any more acquisition news, believes Forsyth. "It will take a year to 18 months to integrate recent acquisitions,"
he says.

Or perhaps not. Another potential mega-deal could be brewing: Steinhoff’s acquisition of Shoprite, a move suggested by none other than the two groups’ biggest shareholder, Wiese. It would be a "natural development", Wiese has told news agency Reuters.

Given Steinhoff’s decentralised management approach, integrating the €7.8bn annual sales Shoprite into the group will not present a major obstacle. It will also complete a circle that began with Pepkor’s acquisition of the eight-store Shoprite in 1979 for R1m.

Indeed, the new year could well be one of more surprises from Steinhoff.

What it means: Steinhoff has shrugged off market scepticism, growing its footprint to 11,00 stores in 32 countries.

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