Johnny looks back
The latest annual report of Hosken Consolidated Investments (HCI), celebrating 20 years since the company’s formation, is an entertaining read — especially CEO Johnny Copelyn’s fascinating and enlightening letter to shareholders. I highly recommend it to investors.
One poignant reminder is that in HCI’S early years, the group’s investment in a free-to-air television broadcaster was, at one point, a rather daunting prospect. Copelyn notes: “In television, we bid for the first free TV licence and survived two gruelling years in which the company lost a legendary R1m/day until finally it turned and became profitable.”
HCI’S 5% stake in Vodacom had to be sold, and investment holding company Remgro clambered aboard e.tv as a significant minority partner. Whether it would have been better to walk away from e.tv and retain the Vodacom stake is an interesting question to debate — albeit merely as an academic exercise.
But what is clear from the annual report is that HCI is finding it a far less arduous task to build its overlooked property division into a real contender.
The property segment was started in typically low-key fashion by HCI in 2013, but at the end of the financial year to end-march, the profit before tax from the real estate endeavours topped R102m, excluding a fair-value gain of R169m.
The property segment chipped in a not-insubstantial R63m to HCI’S headline earnings of R1.3bn — in other words, roughly 4% of the bottom line.
HCI holds some intriguing retail property developments, mostly in and around Cape Town. Copelyn reports that further real estate acquisitions are being negotiated.
However, he does concede that the current pipeline will not be bulked up at the pace of previous years, as the political and economic environment dictates a cautious allocation of capital (as well as a move from predominantly retail assets). Still, I wonder how long it will be before HCI gives serious thought to separately listing its property assets — remembering that subsidiaries such as La Concorde and Deneb Investments are also underpinned by real estate (and not of the retail variety).
Chips down for Sun
Sun International, which has a market capitalisation of about R6bn, is lumbered with debt of more than R15bn.
Admittedly the underlying operations, particular the casino properties, spin cash. But the high-rolling times are long gone, and Sun needs to urgently give thought to deleveraging its balance sheet. The company has admitted it is evaluating a number of options in this regard, the most likely being a rights issue backed by major shareholders.
In the past, I’ve often wondered about the wisdom of bundling together the smaller casino properties, and selling them off in a bid to cull debt.
I presume there’s no chance of that now. The Boardwalk in Port Elizabeth, for instance, endured a gruelling trading period, with casino revenue down 9%. But cost inflation and increased expenditure on marketing to counter the growing threat from alternative gaming modes like limited payout machines (LPMS) and (especially) electronic bingo terminals (EBTS), meant earnings before interest, tax, depreciation and amortisation (Ebitda) plunged 44% to R34m. Depressingly, directors note that the opening of an EBT outlet in nearby Uitenhage will further affect the Boardwalk’s revenues.
Sun’s other small urban casinos — Meropa (Limpopo), Windmill (Free State), Flamingo (Northern Cape), Carousel (North West) and Golden Valley (Western Cape) — collectively reported a 7% fall in revenue and a 19% drop in Ebitda.
But Sun’s alternative gaming business, Sun Slots (which trades mainly in LPMS), looks in rude health, with comparable revenue up 8% to R504m and Ebitda increasing 7% to R114m.
We bid for the first free TV licence and survived two gruelling years in which the company lost a legendary R1m/day Johnny Copelyn