Tag: shares

By Lucinda Shen for Fortune

As of Monday’s market close, those who bought into Uber at its IPO are down roughly $1.4 billion.

But very early investors, and now, the bankers that helped take the company to market are in the green. Uber shelled out $106.2 million to a bevy of underwriters led by Morgan Stanley, per filings with the Securities and Exchange Commission. The group also includes Goldman Sachs, BofA Merrill Lynch, Barclays, Citigroup, and Allen & Company.

That comes as shares of Uber fell another 11% Monday—pulling its valuation down to $62 billion and representing a collective $1.4 billion loss for those who bought in at the company’s $45 IPO price. Assuming that Uber drivers took up all shares offered to them at the IPO price, they are collectively looking at paper losses of about $43.2 million.

On Friday, Uber CEO Dara Khosrowshahi sought to calm his employees regarding Uber’s stock price.

“Like all periods of transition, there are ups and downs,” he wrote in a note to workers.”Remember that the Facebook and Amazon post-IPO trading was incredibly difficult for those companies. And look at how they have delivered since.”

In particular—Facebook’s IPO may echo strongly with that of Uber’s. That IPO too involved Morgan Stanley in the lead role. Following a lackluster first day of trading, the bank’s fees, as well as trades stemming from its role as the lead in the deal, were heavily scrutinized. A Massachusetts regulator later fined Morgan Stanley $5 million over the IPO, arguing the underwriter had selectively disclosed information to certain clients over others.

It remains to be seen whether similar investigations will follow Uber’s IPO. But for now, count the banks as one of the few parties that have profited from this deal.

Death by Amazon

By Rebecca Ungarino for Market Insider

A new “Death by Amazon” index released by the investment-research firm CFRA tracks the stocks its analysts believe could be short-seller targets given their vulnerabilities to competition from Amazon.

The index is full of home goods and electronics retailers like Party City and Bed Bath & Beyond, some of which have seen their entire market value wiped out in recent years.

Investors are familiar with the Amazon effect by now.

The e-commerce juggernaut announces that it is preparing to enter into an industry – be it medication, brick-and-mortar grocery, entertainment, or others – and the stocks of companies in the new target market fall as jittery investors are struck with the fear that irreversible disruption is coming.

So the investment-research firm CFRA created a new index, “Death By Amazon,” that tracks the stocks its analysts think are particularly vulnerable to Amazon’s expansion and offerings.

“The equally weighted index serves as a retail performance benchmark and short-selling idea generation tool for our clients,” CFRA analysts Camilla Yanushevsky and Todd Rosenbluth wrote in a report to clients earlier this month.

To pinpoint the 20 constituents the analysts believe are poorly positioned to compete against Amazon’s efforts in various industries, they evaluated the companies’ “Share of Voice” data that comes from web-traffic analytics company Alexa Internet (which is owned by Amazon as its other Alexa-named product).

That measure shows the percentage of searches for a keyword across major search engines in the past six months “that sent organic traffic to the respective site.”

For example, the analysts compared how much traffic was going to a national jewelry retailer’s website when consumers search for the term “jewelry” versus how much traffic was going to Amazon for the same search term.
With this kind of analysis, you get an index full of brick-and-mortar retailers whose products are available on Amazon – and apparently less popular through online searches – from floor tiles to party supplies.

To be fair, it’s not the first Death by Amazon index. Bespoke Investment Group had already created its Death by Amazon index, tracking the same theme.

Here are all the stocks listed, in alphabetical order, with how their “Share of Voice” scores for various products stack up against Amazon:

  1. At Home Group
    1-year performance: -40%
    % below all-time high: -46%
    Share of Voice score for “seasonal decor”: 4.2%
    Amazon’s Share of Voice score for “seasonal decor: 19.6%
  2. Barnes & Noble Education
    1-year performance: -38%
    % below all-time high: -74%
    Share of Voice score for “textbook”: 1.3%
    Amazon’s Share of Voice score for “textbook”: 6.9%
  3. Barnes & Noble
    1-year performance: -0.1%
    % below all-time high: -84%
    Share of Voice score for “books”: 23.2%
    Amazon’s Share of Voice score for “books”: 12.2%
  4. Bed Bath & Beyond
    1-year performance: -16%
    % below all-time high: -80%
    Share of Voice score for “cookware”: 2.4%
    Amazon’s Share of Voice score for “cookware”: 23.3%
  5. Best Buy
    1-year performance: -14%
    % below all-time high: -19%
    Share of Voice score for “electronics”: 1%
    Amazon’s Share of Voice score for “electronics”: 8.1%
  6. Big 5 Sporting Goods
    1-year performance: -71%
    % below all-time high: -88%
    Share of Voice score for “fitness equipment”: 0%
    Amazon’s Share of Voice score for “fitness equipment”: 11%
  7. Big Lots
    1-year performance: -6.5%
    % below all-time high: -41%
    Share of Voice score for “cookware”: 0%
    Amazon’s Share of Voice score for “cookware”: 23.3%
  8. Dick’s Sporting Goods
    1-year performance: +15%
    % below all-time high: -43%
    Share of Voice score for “sports deals”: 18.7%
    Amazon’s Share of Voice score for “sports deals”: 24.5%
  9. GameStop
    1-year performance: -31%
    % below all-time high: -87%
    Share of Voice score for “video games”: 7%
    Amazon’s Share of Voice score for “video games”: 17.1%
  10. Kirkland’s
    1-year performance: -49%
    % below all-time high: -81%
    Share of Voice score for “home decor”: 5.4%
    Amazon’s Share of Voice score for “home decor”: 10.8%
  11. Office Depot
    1-year performance: -19%
    % below all-time high: -95%
    Share of Voice score for “office supplies”: 33.1%
    Amazon’s Share of Voice score for “office supplies”: 9.8%
  12. Overstock.com
    1-year performance: -67%
    % below all-time high: -86%
    Share of Voice score for “dresser”: 1.3%
    Amazon’s Share of Voice score for “dresser”: 9.9%
  13. Party City
    1-year performance: -49%
    % below all-time high: -65%
    Share of Voice score for “party supplies”: 22.5%
    Amazon’s Share of Voice score for “party supplies”: 13.2%
  14. PetMed Express
    1-year performance: -40%
    % below all-time high: -60%
    Share of Voice score for “pet supplies”: 5.1%
    Amazon’s Share of Voice score for “pet supplies”: 13.7%
  15. Pier 1 Imports
    1-year performance: -65%
    % below all-time high: -97%
    Share of Voice score for “home decor”: 8.3%
    Amazon’s Share of Voice score for “home decor”: 10.8%
  16. Signet Jewelers
    1-year performance: -49%
    % below all-time high: -87%
    Share of Voice score for “jewelry”: 3.8% for kay.com, 2.9% for jared.com, and 0.12% for zales.com
    Amazon’s Share of Voice score for “jewelry”: 10.7%
  17. The Michael’s Companies
    1-year performance: -43%
    % below all-time high: -67%
    Share of Voice score for “drawing supplies”: 13.1%
    Amazon’s Share of Voice score for “drawing supplies”: 24.5%
  18. Tiffany & Co.
    1-year performance: -5%
    % below all-time high: -31%
    Share of Voice score for “jewelry”: 6%
    Amazon’s Share of Voice score for “jewelry”: 10.7%
  19. Tile Shop Holdings
    1-year performance: -36%
    % below all-time high: -85%
    Share of Voice score for “tile”: 2.1%
    Amazon’s Share of Voice score for “tile”: 22%
  20. Williams Sonoma
    1-year performance: +7%
    % below all-time high: -42%
    Share of Voice score for “cookware”: 16.7%
    Amazon’s Share of Voice score for “cookware”: 23.3%

Weak pen, lighter sales knock Bic

By Myles McCormick for Financial Times

Flagging sales of pens in India and lighters in North America knocked revenues at French stationery maker Bic at the beginning of 2019.

The company, known for its ubiquitous biros and razors, said sales had fallen 2 per cent on a comparative basis to €415m in the first quarter of the year as its overall trading environment remained “challenging”.

Pre tax income dropped 18 per cent to €55m as South American exchange rates and rising raw material costs weighed on its margins.

Shares in Bic fell as much as 10 per cent in early Thursday trading, making it one of the worst performers on the Stoxx 600 index — second only to Finnish electronics group Nokia, whose shares plunged after an unexpected first-quarter loss.

“After a strong 2018 fourth quarter, and while the overall trading environment remains challenging, 2019 started with soft results impacted by stationery in India and lighters in the US,” said Gonzalve Bich, Bic chief executive.

“However, we maintained or grew market share in our three categories, and regained momentum in shavers,” he added.

In India, Cello Pens, which Bic bought in 2015, saw a double digit drop off in sales as it sought to reduce shipments to so-called “superstockists”. Global stationery sales fell 6 per cent on a comparative basis, stripping out the impact of acquisitions and divestments.

Lighter sales fell 10 per cent in North America on the back of inventory adjustments by wholesalers and a declining market. Globally, lighter sales were down 6 per cent on a comparative basis.

Its shaver business did better, with strong eastern European and Russian performance driving a 10 per cent rise on a comparative basis.

The company expects first quarter “headwinds” to lessen over the year and retained its full year financial outlook of a slight growth in sales.

Naspers to unbundle and list MultiChoice

By Nick Hedley for Business Day

The transformation of Naspers, which was founded more than a century ago to produce Dutch-language newspaper De Burger, into an online-only behemoth is almost complete.

Africa’s most valuable company, which owns a 31% interest in Chinese internet giant Tencent, said on Monday it planned to unbundle its pay-TV business MultiChoice onto the JSE.

Naspers will hand its interest in the DStv operator to its shareholders.

Investors cheered the news. After falling 3.2% earlier in the day, in line with Tencent’s decline in Hong Kong, Naspers rallied to close 0.7% up at R3,206.42, valuing the company at R1.4-trillion.

Naspers hopes to list the new entity MultiChoice Group, which includes its local and rest-of-Africa pay-TV business along with Showmax Africa and security company Irdeto, in the first half of 2019. The unbundling will cap off a remarkable transformation at Naspers, which was mostly a publishing and pay-TV business until its 2001 investment in China’s Tencent.

Naspers would not raise funds through the deal, said CEO Bob van Dijk, but its shareholders would benefit as the market currently ignored MultiChoice when valuing the group.

In its sum-of-the-parts valuation, US bank JP Morgan calculated that Naspers’ majority-owned MultiChoice unit is worth $8bn. More than 90% of that value sits in SA, according to the bank. That implies that MultiChoice Group is worth more than Shoprite.

Van Dijk said Naspers plans to give MultiChoice SA’s BEE investors another 5% stake in the local pay-TV business. “Besides unlocking value for our shareholders, maybe more important we think it will also unlock value for [BEE scheme] Phuthuma Nathi, which is already one of the most successful broad-based BEE schemes.”

He said Naspers will continue to invest in its SA e-commerce businesses, which include Takealot, Mr D Food, PayU and AutoTrader. “In the last year, we invested more than R3bn in the e-commerce businesses in SA alone. We expect to continue to invest and we’re looking at interesting prospects.”

It will also retain its interest in Media24, which is moving quickly into online publishing. The pay-TV market was poised for further growth despite pressure from internet-based rivals such as Netflix.

“Even in markets like Europe, people still have traditional TV services and on top of that people have connected services. In Africa the story is even more positive — you see very significant growth in traditional TV … as well as decent take-up already in SA of [streaming services] DStv Now and Showmax. I’m confident it’s a growth story.

“I feel confident about putting the business on its own legs.”

Robert Pietropaolo, a trader at Unum Capital, said the unbundling would be positive for Naspers “but the pressure will certainly be on MultiChoice to stay competitive”.

“MultiChoice themselves have already started cutting their headcount and they have started offering lower-tier packages, which unfortunately does not bring in the desired revenues. MultiChoice will not only have to be nimble from now on, but I think they may have to re-invent themselves to be competitive,” Pietropaolo said.

In the year ended March, the pay-TV operator lost 41,000 premium subscribers across its African markets. Even though the total subscriber base grew — MultiChoice added 563,000 users in SA in the year to March — this growth came from far less profitable lower-cost packages. However, the company remains highly cash generative. Over the same period, MultiChoice generated revenues of R47.1bn and trading profits of R6.1 bn.

MultiChoice SA CEO Calvo Mawela said the company had slowed the decline in high-margin premium subscribers. It lost more than 100,000 of these customers in its 2017 financial year but reduced that number to about 40,000 in 2018.

“Our focus on Premium is beginning to bear fruit.… We’ll continue to focus on Premium to ensure that we do not see further decline in Premium subscribers going forward.”

Naspers takes a hit as Tencent stocks tumble

By Kana Nishizawa and Jeanny Yu for Business Day

If you thought the slump in US technology stocks was bad, take a look at Tencent, the Chinese internet giant 31% owned by JSE-listed Naspers.

Tencent has tumbled 25% from its January peak, erasing about $140bn of market value. That is the biggest wipeout of shareholder wealth worldwide, as measured from the date of each stock’s 52-week high. Facebook, the F in the FANG block of mega-cap US tech stocks, is the second-biggest loser, with a $136bn slump over the past three trading sessions.

Investors around the world are beginning to question whether the best days are over for technology stocks — the undisputed leaders of a nine-year boom in global equities. Tencent, Asia’s second-largest company after e-commerce behemoth Alibaba, has also been dogged by concern that growth in its mobile-gaming unit is slowing. The stock, down 9.5% in July, is poised for its biggest monthly retreat since 2014.

“Investors are increasingly pricing in lower expectations for Tencent’s interim results,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “Overall, tech companies are facing a similar problem. They have been enjoying fast profit growth in the past few years, so it will be difficult for them to maintain similar growth in the future as the competition grows and some segments are saturated.”

Tencent’s year-on-year profit growth probably slowed to 5.1% in the second quarter, the weakest pace since 2012, according to analyst estimates compiled by Bloomberg before the company releases results on August 15. At least 11 brokerages cut their Tencent share-price target in July, including Credit Suisse Group and Morgan Stanley.

Still, analysts have not turned bearish: all 51 forecasters tracked by Bloomberg have a buy recommendation on Tencent shares, with the average price target implying a 44% gain over the next 12 months.

By Tehillah Niselow for Fin24 

Steinhoff, once referred to as “the Ikea of Africa” and its former CEO Markus Jooste as the African Warren Buffet has seen a spectacular fall from grace since December when it revealed accounting irregularities in its books.

More than 95% of its market capitalisation has been wiped out and the international retailer faces angry investors, from public servant pension funds to Wall Street’s biggest banks.

Four months later, and there’s still no official word on what the accounting irregularities were, the former CEO Markus Jooste is yet to answer burning questions and the share price remains volatile.

The complex and opaque nature of the company, registered in the Netherlands, listed in Frankfurt and Johannesburg and headquartered in Stellenbosch have increased the difficulty in investigations.

Fin24 takes a look at the events of recent months which saw the once giant company, nearly collapse.

24 August 2017

• German media reports that German prosecutors are investigating whether Steinhoff inflated earnings.
• JSE listed shares fell 16% in intra-day trade.
• The company rejects the allegations in the report.

6 December 2017

• Disclosure of “accounting irregularities” and appointment of PricewaterhouseCoopers to investigate the financial statements.
• CEO Markus Jooste resigns, apologising to staff
• Share price dives on JSE by a record 62%, wiping out R117bn in the company’s market capitalisation.

7 December 2017

• Moody’s Investor Services cuts Steinhoff’s credit rating from “lowest investment grade” Baa3 to “highly speculative” B1 as a junk bond.
• Steinhoff’s second largest shareholder, the Public Investment Corporation’s (PIC) 56% stake is worth just R3.6bn. Two weeks prior it was worth R20bn.
• Steinhoff announces new sub-committee to improve governance, all of the 3 appointees are members of the board.

13 December 2017

• Steinhoff announces that the company’s 2016 financial statement can no longer be relied upon and will need to be re-stated.
• The Government Employees’ Pension Fund (GEPF) and its asset manager, the PIC, insist on having 2 representatives on Steinhoff’s board committee investigating the company.

14 December 2017

• Largest Steinhoff shareholder, chairperson and acting CEO Christo Wiese resigns from the board. Continues to insist that he was unaware of the accounting irregularities.

4 January 2018

• Steinhoff chief financial officer (CFO) Ben la Grange resigns.

8 January 2018

• European Central Bank sells entire holding of Steinhoff bonds. The ECB bought into Steinhoff Europe’s €800m bond issue in July 2017, when the bonds carried an investment grade rating. It had to sell due to the central bank’s requirements.

12 January 2018 to 17 January 2018

• JP Morgan, Citigroup, Bank of America and Goldman Sachs reveal losses relating to hundreds of millions of dollars in Steinhoff.

30 January 2018

• Former CEO Markus Jooste declines an invitation from the three parliamentary portfolio committees jointly probing Steinhoff, to appear before MPs saying he’s no longer involved in Steinhoff.
• Acting chairperson Heather Sonn tells MPs that Steinhoff has handed over evidence of fraud to the Hawks, against Jooste.
• Board and Christo Wiese say they are unable to reveal the state of affairs at Steinhoff, until PwC has completed its independent investigation.

12 February 2018

• Steinhoff’s former chairperson Christo Wiese involuntarily sells shares related to his margin loans reducing his shareholding in Steinhoff from 20.52% to 6%.

2 March 2018

• Moneyweb publishes leaked emails which show how former CEO Markus Jooste worked with other executives to move revenue figures around subsidiaries to boost their balance sheets and hide losses.

28 March 2018

• Hawks accuses Steinhoff board of “malicious compliance” with the law in handing over documents related to former CEO Markus Jooste, saying there was nothing contained in them to assist authorities with gathering evidence.
• Parliament’s joint committees probing Steinhoff resolve to subpoena Jooste as he twice declined an invitation to answer questions

5 April 2018

• Following public outrage, Steinhoff directors decide against the proposal to shareholders to reward themselves bonuses for working to restore the company after its collapse.

20 April 2018

• Annual General Meeting, in Amsterdam, Netherlands where the company’s board will for the first time come face to face with shareholders, since the December crash, and face tough questions about their handling of the crisis.

One of H&M’s largest shareholders has lost its patience.

Skandia’s actively managed funds have spent the past months selling off most of its stake in Hennes & Mauritz after watching the fashion retailer struggle with weakening sales in its physical stores and intensifying online competition. The Swedish savings and insurance giant says there is a raft of issues H&M would need to address before it will consider investing again.

“There’s so much they need to do that I don’t think they’ll solve this quickly,” Erik Sjostrom, who oversees more than $3bn as a senior portfolio manager at Skandia, told Bloomberg.

H&M, whose biggest shareholder is the billionaire Persson family that started the company in 1947, sank more than 30% last year. This year, the stock is down about 7%.

The world’s second-largest fashion chain by sales (after Zara-owner Inditex) needs to start prioritising profitability over growth and present a credible plan for tackling online competition, Sjostrom says.

It also needs to cut its dividend, reduce the number of stores in mature markets and focus on getting its product mix and price levels right, as well as reducing or writing off excess inventory that gets in the way of new trends hitting its shelves, he says.

H&M has said it feels confident it can fix its “disappointing” sales history. Management is working on building its online presence, creating new brands, improving its shops and fixing inventory issues with better technology.

H&M’s problems partly stem from its slowness to adapt to a digital age in which consumers increasingly shop online. As recently as a year ago, its main target was to grow its physical store network by between 10%-15% annually. As it became clear more shoppers wanted to make their purchases online, H&M changed that goal to aim instead for annual sales growth of between 10%-15%, including online commerce. Its digital sales have increased, but H&M still faces stiff competition from multi-brand and free shipping platforms like Zalando and Asos.

Analysts also appear to be losing their patience. Of those who provide their H&M ratings data to Bloomberg, 51% are now advising clients to sell the shares. That’s the most negative overall analyst view since at least early 2003, according to Bloomberg data. The average 12-month analyst price target has dropped to the lowest since early 2009.

Skandia’s funds, including its index-tracking funds, have sold a total of 1.26-million H&M shares in the past year and now hold 2.8-million shares, or 0.2% of the share capital (Skandia’s pension arm holds about additional H&M shares.)

Sjostrom says Skandia’s actively managed funds now have “almost nothing left” in H&M. The fund manager says he is unlikely to start buying again until H&M shows it understands the new market in which it operates, including the need to make products available at external online marketplaces.

“Why go to H&M, where you can only buy H&M? If you go to Zalando, you can buy a whole bunch of brands,” he said. “You need to be on these platforms.”

While H&M is working to address that issue in part by extending a co-operating agreement with Alibaba Group’s Tmall in China, Sjostrom says that is not enough. Even if the company is growing online, it is “still losing too much in stores,” he says.

The rise of low-cost retailers such as Associated British Foods’ Primark and Fast Retailing’s Uniqlo poses another problem. H&M virtually invented the business of low-cost, fast-fashion retail in the early 1990s, but is these days neither the fastest nor the cheapest brand.

“The market is changing very quickly, and H&M needs to figure out a new way to keep up with these developments,” Sjostrom said. “If they show how they’re going to fix it in a few years, then it could become an investment opportunity again.”

By Anna Molin for Business Day / Bloomberg

Steinhoff raises R7.1bn from sale of PSG shares

Steinhoff International raised R7.1bn billion of shares in South African financial services firm PSG, the latest in a line of disposals aimed at shoring up the retailer’s battered balance sheet.

The owner of Mattress Firm in the U.S. and Poundland in the UK placed almost 29.5 million shares in Stellenbosch, South Africa-based PSG with institutional investors, Steinhoff said in a statement Monday. That’s on top of the 20.6 million PSG shares sold late last year at the start of an accounting scandal that’s wiped out most of its market value.

“This is positive for Steinhoff as it will secure a decent bit of liquidity out of a fairly well-priced asset,” Alec Abraham, an analyst at Johannesburg-based Sasfin Securities, said by phone. “By selling out of a non-core asset, the company is better able to support its core, furniture businesses.”

The shares rose 3.7% as of 4:41 p.m. in Frankfurt, where Steinhoff moved its primary listing from Johannesburg in December 2015. PSG rose 0.2% by the close in the South African city to R254 rand, about 5.5% higher than the R240 price Steinhoff received for its stock. The retailer holds a 2.5% after the placement.

Steinhoff has been identifying non-core assets to sell while holding talks with lenders about providing financial support. The company said December 5 it had uncovered accounting irregularities and later announced it would have to restate accounts going back to 2015. Chief executive officer Markus Jooste and chairman and biggest shareholder Christo Wiese have both resigned.

The company earlier this year sold a luxury Gulfstream 550 private jet that had once been valued at $25m, while French unit Conforama has disposed of a 17% stake in online retailer Showroomprive for €79 million euros. That’s about half what it paid for the shares in May last year.

The PSG placing was carried out by PSG itself and the South African unit of Standard Bank.

Separately, Amsterdam Court’s Enterprise Chamber delayed a verdict on a case brought against Steinhoff by a former joint-venture partner until no later than February 19. It had been due to make a decision on the case Monday.

By Janice Kew and John Bowker for Bloomberg / Fin24

Shoprite announced subdued growth on Tuesday, blaming deflation for its lacklustre performance.

The group increased its turnover by 6.3% for the six months to December 2017 – less than half of the 14% achieved in the same period in 2016.

CEO Pieter Engelbrecht said overall internal price deflation occurred in the last quarter, and that the slowdown in turnover growth should be viewed in the context of average grocery price inflation decelerating to 0.4% during the reporting period. It was 7.4% in the corresponding period.

Supermarkets RSA, Shoprite’s primary business, increased sales by 7.8% during a period when internal inflation fell to 0.4% for the six months compared to 7.4% in the previous corresponding period, driven mainly by a drop in the price of basic commodity items.

Shoprite said economic and trading conditions in its foreign markets remained unchanged, and as a result the group’s non-South African supermarket operating segment reported a 0.4% drop in rand terms.

The impact of lower commodity prices and the depreciation of local currencies remained prevalent in the larger economies it operates in outside South Africa, the group stated.

Shoprite’s furniture division reported increased sales of 10.8% while other operating segments, mainly driven by the OK Franchise division’s performance, saw 6.7% growth.

Engelbrecht said this was pleasing given low internal price inflation, and was in line with the group’s South African supermarket performance.

Shoprite’s interim results are scheduled for release on February 27.

Shares in Shoprite were trading at R214.54, up 0.72%, on the JSE on Tuesday.

Source: Fin24.com

How Steinhoff affected us normal folk

Most South Africans who invested are poorer today due to Steinhoff’s business collapse and are asking for answers from fund managers.

But‚ many say‚ the business was so complicated‚ with its audited financial statements appearing so reasonable‚ that it was easy for investors to miss red flags pointing to the alleged multi-billion dollar fraud.

Steinhoff’s share price dropped from R46.60 at close of trading on Tuesday to R12.74 a week later. The company has reported a missing R100-billion in the company’s European operations.

Fund Manager Simon Brown said the easiest explanation is to say South African pension holders and investors are R160-billion poorer since the crash. As hundreds of funds would have lost money it is difficult to put an exact figure on the losses.

Many furious South Africans are demanding answers from investors. But multiple fund managers explained that until Tuesday the numbers looked reasonable and “fraud by its nature is subtle”.

The search for answers follows Parliament’s Standing Committee on Public Accounts on Monday calling for the Hawks‚ SARS‚ Reserve Bank and Independent Regulatory Board of Auditors to investigate Steinhoff’s implosion and financial losses.

Not everyone however‚ is buying the investors’ explanations‚ with some Steinhoff critics questioning the company’s executives “loose accounting practices”.

Futuregrowth chief investment officer Andrew Canter said they stopped lending money to Steinhoff roughly eight years ago.

He said they avoided Steinhoff for multiple reasons‚ which included their business’ horrendous complexity‚ involving different brands and companies across different jurisdictions in multiple currencies‚ along with their never-ending acquisitions which rendered year-on-year analysis difficult and credit ratios unreliable.

“If we can’t understand the business‚ why would we lend to it?”

Canter said key to Futuregrowth was being wary of the way Steinhoff’s management conducted business.

He said there were enough signs “which evidently some chose to ignore”.

“From what we know today‚ Steinhoff’s management appears to have been playing fast and loose with the tax laws and accounting practices.”

Investor Karin Richards who has looked back at the Steinhoff cash flow‚ and ratios investors use when scrutinising businesses since the implosion‚ however said: “There is nothing here for me that says ‘oh my … here is a big problem’.”

She said as a former auditor she had a better idea than the average person on how to “window dress accounts”. “But the numbers look reasonable.” She said many funds would have lost their first inflation bases gains in three years. Fund manager Keith McLachlan commented on how people started claiming investors should have spotted the fraud: “Everyone knew it was fraud‚ after the fact.

“Intuitively‚ if one ignores the complexity of the Steinhoff business‚ if it was obviously fraud‚ not only would the stock market have seen it‚ but the auditors would have picked up on it long before it even saw the light of day.

“Nothing in the Steinhoff financial statements really screamed fraud or deep obfuscation of the numbers.

“At best‚ it perhaps looked like a business that was growing a bit too fast. At worst‚ it showed a business whose fundamentals weren’t particularly great. Fraud by its very nature is subtle.”

Wits governance expert Alex van den Heever‚ however‚ said that one needed to question why some investment and equity loan companies saw the red flags‚ but others didn’t.

“That some firms didn’t pull their funds despite other companies’ concerns points to a bit of an ‘old boys club’ operation with people just accepting the word of others in the industry.”

Brown said the financial industry needed introspection.

“Should we not at least as an industry that after looks after people’s pension have some introspection how we got this wrong?

“There are a lot of people saying I can’t see fraud‚ but I can’t see a quality business. Yet‚ we put R400-billion in pension money into this business.”

The R400-billion is when business was R95 a share some time last year.

Financial analyst Stuart Theobald agreed that numbers appeared reasonable but said people trusted Steinhoff main shareholder Cobus Wiese. “Wiese had a certain halo effect. People had committed faith in his abilities to manage complexity and stay on the right side of the law‚ while sometimes going close to the line.”

By Graeme Hosken and Katharine Child for The Sunday Times
Image – The Sunday Times

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