Marc Hasenfuss: Market Watch

International and Grand Parade Investments offers a framework.

Sun bought control (on a staggered basis) of the LPM operations of Grand Parade Investments on a 7.5 times Ebitda multiple. Vukani’s LPM operations (including losses from the fledgling sports betting arm) chipped in Ebitda of R291m. If we apply a 7.5 times Ebitda multiple to Vukani, Niveus’ LPM operations hold a value of over R2bn. If we add the implied value of KWV’s sale assets and the legacy assets, and factor in a smidgen of debt, we pretty much have the current market capitalisation.

This means the market — admittedly devoid of institutional interests — is writing down the value of Niveus’ profitable EBT operations to zero.

I think those odds are wrong. Galaxy Gaming almost doubled Ebitda to R62m from its 1,642 EBTs, but more importantly, fully developed sites contributed R130m before considering headoffice cost, development and bid costs, start-up costs and trading losses. Niveus has lately, though, been highlighting that legislative changes remain the biggest threat to prospects, citing in the recent financial report the department of trade & industry’s national gambling policy.

Specifically, Niveus says the policy still contains provisions that are negative for the bingo industry, especially regarding the number and type of EBTs. Niveus has already hit snags in KwaZulu Natal, where the finance MEC has challenged its bingo licences and EBT awards.

These legislative impediments are frustrating, but not a big enough risk to diminish prospects for EBTs so drastically.

For those willing to call the “legislative bluff”, Niveus offers great odds for the longer term.