Tekkie Town goes into Steinhoff cart

GROWTH-hungry Steinhoff International Holdings has gone on yet another shopping spree, this time acquiring well-known domestic footwear retailer Tekkie Town for an undisclosed amount.

Tekkie Town operates 302 stores in Southern Africa. Picture: SUPPLIED
Tekkie Town operates 302 stores in Southern Africa. Picture: SUPPLIED

This is the integrated retailer’s third acquisition in the past six months after it acquired UK-based discount retailer Poundland and US-based Mattress Firm, for which it is still awaiting shareholder approval.

Steinhoff has been on an impressive acquisition drive ever since it bought Pepkor for R62.8bn in 2015.

Tekkie Town operates 302 stores in Southern Africa. The acquisition will bolster the group’s general merchandise category, which includes Pep, Ackermans and Shoe City.

Steinhoff released annual results on Wednesday, reporting double-digit growth for the 12 months to June 30.

Speaking at the results presentation, CEO Markus Jooste was tight-lipped about acquisitions but said the group had grown its “network in SA and in Africa, and the expansion plans of the year to come are in line with similar growth patterns that we had last year.

“So, the investment in a further store network throughout SA and African territories will continue.” Africa remains Steinhoff’s largest territory for the general merchandise retail segment, with about 64% of revenue earned in the region.

Byron Lotter, a portfolio manager at Vestact, which holds a less than 1% stake in Steinhoff, said “a small acquisition like Tekkie Town fits in perfectly with their Pepkor model and it shows that they are not completely biased in investing in Europe and they will invest wherever they see opportunity.

“They are looking at old, neglected brands which they can consolidate and put into their massive distribution network … they have got the expertise to do that successfully.”

Yet the 17% devaluation of the rand saw a decline in like-for-like sales for the group in Africa, as currency weakness affected performance, according to Jooste.

Despite this, Jooste said the African division revenue decline was expected, “given that we embarked on a strategy to improve margins by reducing in-store credit, taking into account that credit sales only represent 17% total revenue from 55% in the comparative period.”

The group earned 73% of its operating profit in Europe, while 25% of operating profit was earned in Africa and 2% in Australasia.

The group, whose primary listing is in Frankfurt, managed to report revenue growth of 33% to €13.1bn. Operating profit increased 32% to €1.5bn, compared with the previous period.

Diluted adjusted earnings per share of 29.5 euro cents were 3% lower than the comparative period, despite the 25% increase in the average number of shares.

Lotter said: “The numbers all sound good and well, but there is a huge dilution in the increase of shares … so we can’t pretend that those numbers were flying on the headline earnings”. But, Lotter said, the numbers gave some sort of valuation.

He said 29.5 euro cents a share, “when you turn that into a rand, it’s about R4.60 a share trading at R86. It’s no longer the cheap Steinhoff that we use to have when it used to trade around 12 times earnings. We are seeing something closer to 18 times earnings.

“We should expect [growth] from a business of this nature. It’s listed in Europe, it’s a great rand hedge, it’s got good prospects, it ticks all the boxes,” he added.

Lotter maintained that Steinhoff promised aggressive growth in Eastern Europe.

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