After an explosive rally, Steinhoff falters as Pepco releases trading update

After a monster 50% rally on Tuesday, Steinhoff's share price retreated slightly on Wednesday after its European retail chain - which may be the target of a takeover bid - reported a trading update.

Pepco Group reported total revenue growth of 13% for the three months ended December 2019. The group increased the number of the stores in its store network by almost 15% from the previous year, to 2,809 stores.

The group owns the cut-price retailer Pepco, which has more than 1 600 stores in Central and Eastern Europe, as well as the UK chain Poundland, which famously sells branded products for a pound, and Dealz, which does business in Ireland, Poland and Spain. 

Sky News reported on Monday that a former owner of Poundland is plotting a takeover deal with two private equity firms, in a transaction that could value Steinhoff's European company at more than €4.5bn (R73 billion)

Pepco Group's Eastern Europe chain Pepco bolstered its total revenue by almost 25% after the retailer expanded its store portfolio by over 20%, opening 94 new stores in the three months. 

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“Pepco Group has continued to deliver operational and strategic progress, in this important trading quarter, reflecting our clear growth strategy, centered on the significant long-term opportunity for further PEPCO stores in central Europe, together with a focus on day-to-day retail execution, said the CEO of Pepco Group Andy Bond.

“This combination has secured another quarter of strong revenue growth, both in total and like-for-like terms, in each of the Group’s brands,” he added. 

Poundland's Dealz's total revenue for the period rose 1.3%. Despite a weak consumer backdrop, the retailer saw a record trading day before Christmas where it served about 1.6 million customers. The retailer also expanded its portfolio by over 40% after opening 22 more stores and expectations of opening 50 more in the period.

Steinhoff’s shares price reached approached R2 on Wednesday morning - for the first time since May 2019 - amid optimism about a possible Pepco Group takeover deal. 

According to Sky News, the previous owner of Pepco, Advent International who sold Pepco to Steinhoff for £200 million a decade ago, is partnering with Hellman & Friedman and Mid Europa Partners and plans to reclaim control of Pepco.

But by lunchtime on Wednesday, it was trading at 155c.