5 Reasons why this EU furniture manufacturer should be in your long-term portfolio before the rand implodes

by , 13 April 2016
5 Reasons why this EU furniture manufacturer should be in your long-term portfolio before the rand implodes
Local furniture manufacturing may not be the most exciting sector on the JSE, but there is one furniture company bucking the trend. This company doesn't care if the South African consumer is “under pressure”. It doesn't care if South Africa's economic growth outlook is weak. In fact, shareholders were most likely celebrating in secret when they heard Pravin Gordhan was being investigated by the hawks.

Today I'm going to discuss the enormous profit machine that is Europe's second largest furniture retailer.

With a presence in 30 countries, over 40 retail brands, around 6,500 retail outlets worldwide, this company is listed on two exchanges and is an ideal candidate for long-term equity portfolios. Fortunately for you, even as an SA investor, you can still access this Eurozone behemoth share directly through a regular JSE share trading account.

Read on below to find out more...
 

What company am I talking about?


Steinhoff.

While this company started out as small furniture manufacturer, over the last decade it has exploded onto the European retail scene, becoming the second largest furniture retailer on the continent.

Here are 5 reasons why you should own this share


There are several critical factors impacting this company’s earnings and cash flow, and consequently its share price:
 
1.
 
 
 
 
A cunning business model: It sources and manufactures products in low-cost locations and sells them in developed markets.

This means the company manufactures in soft currencies and exports into hard currencies. This gives the company a healthy rand hedge quality.
 
2.
 
 
 
 
 
 
 
Its vertically integrated supply chain: This model simply means the company manufactures on one side and retails on the other.
 
The group’s scale drives efficiencies and ultimately reduces product cost. This enables the company to provide essential products at affordable price points.
 
As a result, the company can grow its market share and achieve critical mass over time - which in turn drives volume growth and increases cash flow!
 
3.
 
 
 
 
 
A continuous investment in stores: Steinhoff continues to develop its retail footprint. For example, the recent acquisition of Darty, which will further transform a former acquisition, Conforama, into a high-performing business.
 
Now people may point to concerns around slower retail sales and general economic growth in Europe, but remember, Steinhoff operates in a value segment where demand is less volatile. Its sales figures have proved resilient in the current market climate. And, with Draghi’s finger still on the trigger of the stimulus bazooka, the Eurozone consumer spending power has scope to grow.
 
 
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4.
 
 
 
 
 
 
 
  
5.
 
 
 
The value from its property division: Steinhoff’s investment in its property portfolio is a strategic move to protect the group’s long-term sustainable margin.
 
Its retail properties are mostly situated in Europe, where the licence to sell household goods is dedicated to a particular property. This enhances the group’s competitive advantage.
 
The industrial properties are located in Europe, the UK and South Africa. The value of its European property, at cost, is € 3.1 billion and encompasses 4.1 million square metres of land. This gives Steinhoff a serious level of stability.
 
A wider coverage by analysts: The Frankfurt listing late last year dramatically increased Steinhoff’s potential capital base. So more heavy hitting sell-side analysts are covering the company than ever before. This should mean more money will “find a home” in Steinhoff, and I believe we can expect strong share price growth on the horizon. Currently, the sell-side consensus recommendations are 5 buys and 1 sell.
 

What to do next

 
This is just one of many of the stocks I believe should be in every investor’s long-term portfolio. If you would like to discuss this stock with me directly, and your ideal entry and exits points – get in touch here.

Regards,
Gary Booysen for The South African Investor 



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