Faulty valuation

Investors may not get better odds in the alternative gaming sector than with underplayed Niveus

The market seems to have great difficulty plotting the value of Niveus, the alternative gaming play controlled by Hosken Consolidated Investments (HCI).

Niveus owns Vukani Gaming (an operator of limited payout machines, or LPMs) and Galaxy Bingo (which operates electronic bingo terminals, or EBTs), as well as 57% of liquor group KWV Holdings and an influential stake in the (small) Kuruman casino.

At the end of January the share slumped to R13.18, apparently as a significant investor became a forced seller. The share has since recovered to over R22, but the market valuation seems to dilute the effects of the proposed sale of the operating assets out of KWV for R1.1bn. On paper, proceeds of R1.1bn would equate to over 500c/share, though it is reasonable to discount this figure because the actual settlement is paid over in monthly instalments over 36 months.

But over and above the proposed KWV asset sale are the so-called “heritage assets” that remain behind at KWV — most notably coveted wineland properties like Laborie and La Concorde as well as a splendid collection of local art. These carry an implied value of R300m, but a figure of between R500m and R800m might be a more realistic assessment, especially when considering the redevelopment potential at the properties.

The bottom line is that Niveus’ investment in KWV does provide some reassuring bedrock value. This makes for a rather intriguing assessment of Niveus’ alternative gaming operations, which kicked in earnings before interest, taxes, depreciation, and amortisation (Ebitda) of R348m and headline earnings of R129m in the year to end March. The LPM operations are somewhat easier to value in that a recent deal between Sun