We initiate coverage of Steinhoff Africa Retail (SRR). We review the change in the SA population dynamics and highlight how it could impact discretionary spending over the next 10 years.
We highlight the opportunities of growth in the kidswear segment and also the increased risks SRR faces as it ventures into adultwear.
Despite its furniture business’ restructuring being completed, we believe there is further room for space reduction. We are positive with the growth opportunity in furniture as it is coming off a very low base, and that tt is a high margin product category.
We assess the potential impact to SRR’s profitability if it had to take back the furniture loan book and believe that SRR could benefit from bringing it in-house, as the book may be in a relatively healthy position.