Kroks still rock
JUST AS, in the Donald Gordon era, it was generally more rewarding to buy shares in Liberty Life rather than the group’s investment products, the best way to make money from gambling over the long run is to invest in companies running gambling operations.
The laws of probability tell us there are people who consistently make money gambling, but they delude themselves if they attribute that to the success of any odds-beating formula. There’s no such thing; if there were, gambling operators would find ways to vitiate it – after all, they even try to prevent such legitimate tactics as card-counting at blackjack tables.
Gambling – to give it its proper name, not the mealymouthed “gaming” preferred by some operators in a bid for a spurious respectability – was long frowned on by a Calvinist government, but its opening up created handsome investment opportunities.
Significantly, the first parties to take advantage included those skilled barometers of social change, the Krok brothers, after they sold out of the essentially equally frivolous but well-timed business that made their fortune in the Sixties: hair-straightening and skin-lightening “cosmetics”.
The Gold Reef City complex they developed was a pioneering gambling venue, with a reconstruction of Jo’burg’s early mining days thrown in. As well as expanding its gambling interests, it more recently gained further political correctness by opening an apartheid museum.
The holding company, now called Gold Reef Resorts, has added to its portfolio stakes in Mykonos (100km north-west of Cape Town), Golden Horse (Maritzburg), Garden Route (Mossel Bay) and Goldfields (Welkom) casinos. It also controls the licence-holder for a proposed casino on the West Rand and is a participant in the preferred bidder for a casino in Queenstown.
Gold Reef Resorts is currently trading under a cautionary, which is thought to relate to buying in outside interests in various properties and possibly an empowerment deal (see Finweek 11 January).
From the listing in financial year 1999 to financial year 2005, headline earnings per share rose steadily from 34c to 102c. A maiden annual dividend of 15c was paid in 2002; by 2005 that had increased to 51c. In the six months to June 2006, HEPS rose a further 29%. At 2 250c, the share is at an all-time high and its forward price:earnings ratio close to 20. A demanding rating, but then it usually is for investments of this calibre.