Grand Pa­rade div­i­dend on hold

• Em­pow­er­ment group de­fers pay­out as new food busi­nesses test lo­cal con­sumer wa­ters

Business Day - - FRONT PAGE - Marc Hasen­fuss Ed­i­tor at Large Thurs­day’s info: hasen­

Cape-based em­pow­er­ment group Grand Pa­rade In­vest­ments, which has a record of re­ward­ing share­hold­ers with reg­u­lar dividends, has de­ferred a de­ci­sion on a pay­out for the 2017 fi­nan­cial year.

Cape-based em­pow­er­ment group Grand Pa­rade In­vest­ments (GPI), which has a record of re­ward­ing share­hold­ers with reg­u­lar dividends, has de­ferred a de­ci­sion on a pay­out for the 2017 fi­nan­cial year.

GPI holds cash-gen­er­a­tive in­vest­ments in the form of sig­nif­i­cant mi­nor­ity stakes in the GrandWest casino in Cape Town, al­ter­na­tive gam­ing busi­ness Grand­slots and food fran­chisor Spur Cor­po­ra­tion.

But the com­pany is still in cap­i­tal-hun­gry de­vel­op­ment phase with its own fast-food thrust via Burger King, Dunkin’ Donuts and Baskin-Rob­bins.

On Thurs­day, GPI chair­man Hassen Adams said while the com­pany was com­mit­ted to re­main­ing div­i­dend-ac­tive, any dis­tri­bu­tion for 2017 would be con­sid­ered only when fu­ture cash flows could be de­ter­mined with greater cer­tainty.

Adams said spe­cial dividends would be paid out of sur­plus pro­ceeds from the real­i­sa­tion of in­vest­ments. GPI last de­clared a div­i­dend in late Novem­ber 2016, dis­tribut­ing 25c per share or R122m for the 2016 fi­nan­cial year. Adams said GPI recognised that while its food in­vest­ments were in early or start-up phase, the com­pany would con­tinue to adopt a con­ser­va­tive ap­proach on its gear­ing for ex­ist­ing op­er­a­tions.

He said that over the past 36 months, GPI had de­creased its gear­ing lev­els from 35.5% to 16.8% af­ter par­tial dis­pos­als in its gam­ing and leisure port­fo­lio.

GPI’s tar­geted debt eq­uity range was set be­tween 20.0% and 35.0%, Adams said.

He be­lieved the cur­rent level of gear­ing would al­low the com­pany to raise fund­ing at more pref­er­en­tial rates.

Adams noted the com­pany’s ex­po­sure to the South African con­sumer had cre­ated un­cer­tainty that had re­sulted in a sig­nif­i­cant in­crease in the cost of debt avail­able over the last year.

“We have iden­ti­fied the fa­cil­i­ties which are rel­a­tively cheap in com­par­i­son to the pre­vail­ing mar­ket rates and will look to re­tain those fa­cil­i­ties….”

Vu­nani Se­cu­ri­ties an­a­lyst An­thony Clark said GPI still had “enor­mous bal­ance sheet strength” with un­der­ly­ing in­vest­ments in gam­ing be­ing “prodi­gious cash in­fusers”.

He said that an in­trin­sic net as­set value of 698c per share – which is far higher than the rul­ing share price – of­fered added com­fort for share­hold­ers, while the food busi­nesses were gen­er­at­ing losses.

Since fi­nan­cial year-end, GPI has also em­barked on sev­eral dis­pos­als, no­tably the sale of prop­er­ties in Cape Town and Sand­ton for R64m and the dis­posal of its 51% stake in Grand Tel­lumat Man­u­fac­tur­ing for R15m. A di­vi­sional break­down showed Burger King con­tribut­ing a loss of R10m at head­line earn­ings level, but was prof­itable at an ebitda (earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion) level.

Adams said the net restau­rant move­ment in­cluded the open­ing of four new restau­rants and the clo­sure of five un­prof­itable restau­rants in Jo­han­nes­burg and KwaZulu-Na­tal.

Most en­cour­ag­ing was that the av­er­age monthly restau­rant rev­enues in­creased by 9.26%, from R785,000 in 2016, to R865,000 be­cause of a rise of al­most 2% in restau­rant com­par­a­tive sales and a pro­por­tional in­crease in rev­enue de­rived from new Drive Thru sites.

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