Stockland’s Mark Steinert bows out with a mixed report card

Outgoing Stockland chief Mark Steinert. Cartoon: John Tiedemann

In his more than seven years leading Stockland, Mark Steinert attempted to reposition the $8.6bn company. But the reality is that in that time, its stock underperformed the market by 40 per cent.

Its share price of $3.54 at Monday’s close is broadly where it was when Steinert started in January 2013, although of course it’s been higher and was at $5.47 in March this year.

The questions asked of Steinert ignore the fact that he has done a lot, but the doubters rely on the fact Stockland is a diversified property company with an underperforming retirement portfolio, and still too big a weighting in retail.

When he started at the company it boasted of specialising in the three Rs — residential, retail and retirement.

Steinert stopped that and instead increased investment in the two areas slated for sale: logistics and office.

The logistics asset base has increased from $800m to $2.5bn with a $2.2bn pipeline and office is set to be even larger when a $2.4bn development is completed.

Property is obviously a cyclical game, but with the benefit of hindsight, two areas you would be in are retirement and retail, which were two-thirds of the previous strategy.

Attempts to sell retirement have failed and instead Steinert has attempted improvements.

In the six years ending in the 2019 financial year his 9.8 per cent earnings per share growth has topped the peer group average of 5 per cent. The closest competitor is Mirvac with average growth of 7.8 per cent.

The earnings figures put a different, more positive spin on the Steinert reign.

It was not for want of trying, but the naysayers say the trouble is the diversification means you are not sure what you are buying when you invest in the stock.

Steinert would say “quality” and the earnings numbers tend to support his argument, even if stockmarket returns show clear underperformance.

Steinert would defend those charges, noting the big increases in his logistics portfolio which accounts for 26 per cent of the group with a $2.4bn growth pipeline.

The star of the show is residential, in which Stockland holds a 16 per cent market share, five times the size of its nearest competitor.

Steinert has sold $1bn in underperforming retail assets and made landmark changes to the entire group, including digitising the business.

Group cash returns of 8 per cent are led by residential at 21 per cent, compared with around 5 per cent for both retail and retirement.

Steinert has also gone a long way to improving the retail assets known as town centres, where he created a community start-up ­culture.

One of the ventures that excites Steinert most is the AI-based hydroponic vegetable farm POD Farm.

A shopping centre can become a hi-tech incubator, just as his residential villages can spawn new ideas. A base in the local town centre means the start-up is working with the community that potentially will be its market.

Steinert’s approach to these ventures also tells you a bit about his passion for the company and its assets.

Still, after more than seven years in the game he figures it’s time for some “fresh legs” to take Stockland forward.

The company has had remarkably stable leadership, when you consider Steinert replaced Matthew Quinn, who had run the company for 12 years.

Chair Tom Pockett must now find a new boss and Steinert will stay to handle the transition. This tells you the departure is his decision, not the board’s.

With Steinert aged just 53, another executive career is not on the agenda, but after learning the ropes in commercial real estate and then investment banking, just what happens next — whether he spends more time with the family and goes waterskiing — remains to be seen.

Raising the roof

The $300m Challenger raising brings the total raised due to COVID-19 to $24.4bn.

Investment banking fees have edged above $400m with Macquarie the biggest recipient.

The next big wave is due when the corporate earnings season starts in late July.

Called to account

The Deloitte job cuts announced on Monday mean three of the big four have unveiled 1300 job cuts. In Deloitte’s case it’s 7 per cent of the workforce.

The cuts are biggest in the “non-accounting” fields like consulting and corporate services, where essentially the accountants were chasing other people’s work.

Audit, tax, corporate undertaking, risk and compliance are doing OK.

The question is, with the non-accounting work clearly cyclical, will the firms take their own advice and stick to their knitting?

Simplicity is the name of the game in banking and maybe it should be in professional services too.

Sales up at Metcash

COVID-19 has served Metcash’s Jeff Adams well in some respects, with a big second-half increase in sales due to the pantry stuffing by households.

He also reports a trend back to the local store, which has opened customers’ eyes to the benefits of the local IGA and he says they are impressed. That’s the good news.

The bad news is in the last half sales increased by 12 per cent and earnings before interest and tax by 9.5 per cent, which tells you costs increased big time. In the first half earnings grew by 4 per cent and sales by 0.8 per cent.

Net cash from operating activities fell from $249.9m to $33m due largely to a $209m increase in working capital.

This means Metcash, which supplies IGA and other independents, is sitting on some big inventory positions just as the economy is slowing.

The supermarkets are stocking essential items so hopefully the items sitting in the warehouse can be quickly cleared.

Adams says sales growth topped 5.5 per cent in the first seven weeks and hardware sales were strong.

Unlike Coles and Woolworths, which have wholesale and retail under the one roof, Metcash is a stand-alone wholesaler. Some say that’s a fundamental problem for the business.

The inventory build-up, evident in the last half, is a sign of this flaw in the business model.

It’s a pity the economy is weakening because strong sales growth holds the key.