The resounding question, of course, is not why this is still a topic of conversation in 2023, but why Steinhoff is still trading at all. Because as incredible as it may seem, at a price of “just” 50c a share, you can still get your hands on some Steinies before they become well and truly worthless. Some may argue that they are already worthless, despite a tight bid-offer spread that suggests a willing group of buyers at this price.

Creditors are already circling like vultures in a Netflix wildlife documentary, which means that shareholders are likely to hold unlisted instruments soon — and that’s the best-case outcome. If you can imagine a MyCiTi bus on fire in a Cape Town protest, buying Steinhoff shares at this point is like buying a ticket to ride on that bus.

Does that sound like a good idea? To some, it clearly does.

As a further kick in the teeth for investors, Mattress Firm (a portfolio company of Steinhoff) has withdrawn its registration statement with the US Securities and Exchange Commission (SEC), citing ongoing volatility in the IPO market. This development indicates that the company is no longer planning to list in the US.

There is some renewed vigour in the markets after the US inflation print was in line with expectations, so perhaps the IPO market will show signs of life this year. With iconic investment banking group Goldman Sachs announcing significant layoffs in light of reduced demand for services, it’s likely that most companies aren’t going to be brave enough for an IPO this year. Mattress Firm is one of them.

It’s not all bad news. Another Steinhoff stepchild — Pepco — is showing how good things could have been for Steinhoff in an alternate reality. In the three months ended December (the first quarter of this financial year), revenue for this plucky European value retailer was up 27% on a constant currency basis and 24% as reported. There’s a major effort underway to increase the store footprint, evidenced by like-for-like growth coming in at 13% versus the much higher total growth.

The difference between like-for-like growth and total growth is new stores, which in this case are plentiful. There are currently 4,066 stores in the group and the rollout plan is for 550 net new stores in this financial year (including those opened in the quarter just ended).

Of course, turnover growth is only part of the story. Margins need to be watched closely. It takes a while for new stores to ramp up to the desired level of profitability, hence why EBITDA (a proxy for operating profit) is only up “mid-teens” at a time when revenue is growing in the mid-20s. When EBITDA growth is lagging revenue growth, you don’t need to get the calculator out to know that margins have gone in the wrong direction.

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Despite Pepco’s solid strategy in Europe, the problem is the incredible debt load at the mothership. The creditors are taking the keys to the Steinhoff castle and shareholders will be lucky to sleep in the stables, holding unlisted equity instruments. A good rule of thumb is that unlisted shares in private companies are undesirable as liquidity is non-existent.

Other than for institutional investors who may want to walk a risky journey alongside the creditors in pursuit of whatever crumbs fall off the royal table, unlisted shares are generally a bad idea. 

Telkom gets left out in the Rain

Shame man. Telkom really is that awkward kid that no one wants to take to the school dance (except for a few value investors who believe that there is still hope for its acne-covered face.

There was some flirting from MTN for a while, but that quickly fizzled out. Rain then stepped up and re-ignited hopes of a deal, although the company’s conduct got under the skin of the Takeover Regulation Panel and deservedly so. Takeover law isn’t a joke and shouldn’t be treated like one. Lawyers clearly awoke from their slumber and things proceeded peacefully in the background, with the unfortunate outcome that there is still no invite to the dance for Telkom.

After initial discussions (but prior to any due diligence work), the parties decided to walk away from a potential deal. No further details were given.

The market seems to enjoy rejection, sending Telkom 9.3% higher on the day. Telkom’s share price has been under pressure in recent months, and a deal with either of the potential parties would have given shareholders some visibility of a value unlock.

With deals now off the table, Telkom will need to look at someone new for the dance. Rolling blackouts are putting immense pressure on telecommunications companies as they face energy backup costs and irate customers who lose signal at anything above Stage 4 rolling blackouts, so this isn’t the best time to be trying to find a friend willing to take a risk on love. 

Mondi is ready to invest further in Italy

The deal for the Duino mill in Italy has closed, which means that Mondi has parted with the deal ticket value of €40-million.

This is a small part of the total investment, with plans to spend a further €200-million in transforming this paper mill into a solid asset that can produce high-quality recycled containerboard.

If you’re wondering why Mondi bothered to buy the mill in its current form, the proximity to two important export harbours will give you a clue. It is always quicker to buy rather than build, even if you’re buying a base to work from rather than an asset you want to own in its current form.

Mondi is a great example of a JSE-listed company that gives investors exposure to a world far beyond rolling blackouts. BM/DM