Steinhoff sheds more blood as analysts warn of further fallout

Cape Town - Investors continued their relentless beating of Steinhoff International, sending the share price down another almost 40% to an intra-day low of R11.00 following the resignation late on Tuesday night of CEO Markus Jooste with immediate effect amid an accounting scandal.

This share price drop is in addition to the more than 65% dive over the previous three sessions, taking the loss in market value to over R130bn.

By 10:27 on the JSE the shares were changing hands down 26.52% at R12.94, bring the market capitalisation to just under R56bn.

The fallout follows a dramatic increase in uncertainty around the group, the integrity of management and what the true state of the business is. "The only trustworthy information is that the CEO has resigned and that an investigation into accounting irregularities has been launched," said Alwyn Van Der Merwe, Director of Investments at Sanlam Private Wealth.

In an investor note he said their analysis suggests that the worst-case scenario for Steinhoff relating to the German and Dutch court cases against the firm by its former JV partner is a decline in value of €1.9bn, or R6.34 a piece.

"We then assume a worst-case scenario where fines and/or accounting irregularities come to a further €2.0bn or R6.67/share."

He warned that the drop in Steinhoff’s share price will have a detrimental effect on Sanlam Private Wealth's performance for this month and for 2017 as a whole.The SIM Value Fund has a 4.94% shareholding in Steinhoff International.

James Paynter, founder & financial market analyst at Dynamic Outcomes, said in an emailed response to Fin24 it seems long term sentiment for Steinhoff already peaked in April last year, and since then sentiment has progressively started turning negative. "The market was primed for a major sell-off, and this event was just the kind of trigger the market needed," he said.

Abdul Azeez Davids, Head of research at Kagiso Asset Management said the fallout at Steinhoff comes as no surprise. "For years investors have questioned the very low tax rate that Steinhoff was paying."

He said resignation by CEO, Markus Jooste, "who besides being a central figure, was also primarily responsible for Steinhoff’s international expansion", brings into question not only current, but also past results.

"Credibility of the AFS is instantly being doubted - and it is now difficult to determine the true value of the company. We do not know what the ongoing and even new investigations might yield, but in light of the current revelations, there is the distinct possibility of regulatory fines, criminal and civil suits.”

The public prosecutor's office of Oldenburg in Germany confirmed to Fin24 on Wednesday that it was still investigating possible accounting irregularities and fraud at Steinhoff.

German prosecutors said in an emailed statement that, as previously reported, they were still investigating “four current and former managers of a group” for accounting fraud. 

The statement said the balance sheet of the company may have been inflated. German authorities, meanwhile, are still scrutinising and evaluating the “extensive documents and data” obtained during searches. It did not say when these searches took place.

However, in November 2015, ahead of its listing of the Frankfurt Stock Exchange on 7 December, Steinhoff said in a media announcement that German authorities had searched its offices in Westerstede, where Steinhoff has its European headquarters.

Steinhoff announced in its own statement late on Tuesday that it had approached PwC to launch an independent investigation into accounting irregularities, and that CEO Markus Jooste had resigned with immediate effect.

Meanwhile Sean Ashton, Chief Investment Officer of Anchor Capital said the asset manager has taken an in-principle decision to exit its holdings, "but given the share price response we will do this in a manner that maximises value for our clients".

He said it is likely that fundamental value is above current levels – even in a break-up of the business scenario – but the company has clearly lost the trust of institutional investors, including Anchor Capitol. "This could weigh on listed values for some time."

Anchor Capitol had a 5.3% holding in Steinhoff.

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