Steinhoff Directors in Huge Share Punt

BUSINESSDAY, BY ROB ROSE, 20 JUNE 2007

Johannesburg — STEINHOFF’s share price leapt 4,6% yesterday, adding more than R1bn to the company’s market value, as CEO Markus Jooste and eight other directors bought stock worth R487,5m, mostly through the new mechanism of single stock futures.

Effectively, Steinhoff’s nine directors bought an extra 1,7% of the company through this purchase, but this is a significant development as it is the single largest purchase of a South African company’s shares by its bosses using single stock futures .

This could mark the beginning of a trend that will see other company executives piling into their own shares in this way.

To some extent, SA is setting the trend as it has quickly become the largest market for single stock futures in the world after India.

Although single stock futures began trading only in 2001, already investors have bought R25bn worth of single stock futures contracts. In the past year, trading of these contracts has nearly doubled, and 35%- 45% of the daily trade on the JSE now is related to single stock futures.

Single stock futures work by allowing investors to take a punt on the movement of the share price using only a tenth of the money it would take to actually buy the shares.

In this case, if Steinhoff’s directors had R46m to spend on ordinary shares in the company, they could have bought only about 2,1-million shares. But by taking out a single stock futures contract, they can use this R46m as a “good faith” deposit to get exposure to 21-million shares, worth R462m.

Although eight of its directors bought single stock futures contracts in Steinhoff, the company’s founder, Bruno Steinhoff, shied away from the trend and bought R19m worth of shares in the conventional way.

The big spender in this deal was CEO Markus Jooste, who bought contracts for Steinhoff shares worth R265m . Although this will have actually cost him a tenth of that in monetary terms, it will add to shares worth R162m he already hold s in Steinhoff, according to the company’s annual report last year.

It also comes less than a month after Jooste ploughed R165m into buying shares in Jannie Mouton’s financial services group, PSG. Altogether, Jooste now owns 11,8% of PSG, in addition to his interest in Steinhoff.

Yesterday, Steinhoff company secretary Stephanus Grobler said “each director made his own decision how to invest”.

“We have faith in the company. When you look at the share price a year ago, it was trading at these levels, so we believe there’s still good value in this company,” he said.

Those purchases certain ly injected impetus into Steinhoff’s shares on the JSE, which climbed 4,6% to R23,80 — all the more notable considering that the exchange’s all share index lost 0,2% overall yesterday.

Before yesterday’s rise , however, Steinhoff’s stock has lagged the rest of the market considerably. In the past 12 months, for example, the JSE’s all share index has increased 47%, while Steinhoff’s shares have gained only 8,3% in that time.

The furniture company’s prospects took a hit when it was forced to shelve its planned R15bn merger with retailer JD Group at the end of last month, as investors believed the terms of the merger were less than favourable.

Arthur Buchner, the head of derivatives at Nedbank Capital’s equity capital markets division, said yesterday directors typically funded their single stock futures purchases out of debt.

“If these directors are prepared to take debt in order to buy shares, then investors tend to think this is a significant show of faith in the company’s prospects,” he said. I n the Steinhoff case, “this is a fairly large position to take using single stock futures, but there are other directors who have been using this approach of investing in their companies for the past two years”.

Posted in Market commentary

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