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On Monday the 4th of December it was announced that auditors were not ready to sign off on the company’s results spurring aggressive selling in the stock. Today (6 December) the suspicions of Steinhoff International Holding’s accounting irregularities became a realised truth sending the share price around 70% lower, erasing well over R100bn in market capitalisation. CEO Markus Jooste, has fallen on his sword resigning before the market had even opened. The scheduled results release (6 December) has now been abandoned as the unaudited report thereof carries no weight while the extent of fraudulent activity is being ascertained.
Steinhoff has been littered with allegations of misdoings this year, including avoidance of tax and irregular accounting practises as well as not disclosing loans issued to subsidiary companies practices. While some might have looked past the previous and current allegations of the above, adopting an innocent until proven guilty approach, we are now certainly in a guilty unless you can prove otherwise situation for Steinhoff.
The selloff in Steinhoff has extended into the listed equities in which the company has ownership including, Steinhoff Africa Retail and KAP International. The market has little information about the extent of wrong doing as of yet, however there is concerns that these companies to could have been infected with irregularities as well.
Unfortunately Steinhoff International, a former market darling has lost all the investor confidence it once had. Without all the information it is hard to find what is fair value for the company. Volatility in trading the company is expected to remain elevated and in turn the risk therein has exponentially increased. While traders will be tempted to try pick a bottom on this one, there is still a distant possibility that trade could be suspended or delisted in time. Trying to short at these levels presents a very real risk of being squeezed if the large volume of shorts currently in the market start to unwind. With this in mind, those not already committed to the stock might consider leaving it alone for the foreseeable future.