Kroks still rock

Finweek English Edition - - Companies & markets - MICHAEL COUL­SON

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.

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