Peermont to exit JSE gambling board and another player dicey
IN THE DONALD GORDON era it was more rewarding to invest in Liberty Life shares than in the company’s so-called investment products (where do you think DG put his own money?). Similarly, it’s normally more profitable to invest in companies providing gambling services (I hate the weasel word gaming preferred by casino operators in a spurious bid to suggest that they’re involved in something as uplifting as cricket or rugby, and I’m glad the JSE also eschews the term in its description of the sector) than to enrich them by throwing money away at their tables.
So without endorsing the social desirability of gambling, I regret that one of the four gambling shares is about to disappear and that it’s rumoured that there may be a bid pending for another.
I went along to the meetings to consider the private equity bid for Peermont Global in case there might be a dissident shareholder: there wasn’t and the bid was nodded through.
With the three largest shareholders (Genbel Securities, RMB Asset Management and Coronation Asset Management) together holding 73% and committed to the bid, resistance would have been futile anyway.
However, the latest preliminary figures – ironically, presented by MD/CEO Ernie Joubert, who built up the group but will be leaving as a result of the buyout and aiming to repeat his success in Spain – confirm just what a loss the delisting will be.
The figures may be academic, but for the record, revenue last year rose 32%, operating profit 38% and comparable, or adjusted, HEPS no less than 39% to 81,5c/ share.
Commendably, and unlike the stingy practice of many takeovers, there’s a final dividend, though total distribution of 28,6c is still almost 12% less than in 2005.
Tucked away in the small print, Peermont reminds us that HEPS has grown at a compound 28,7% since the listing in 2004.
The cash price for Peermont – 1 290c/ share, announced as long ago as last November – was then a 44,7% premium to the share price between mid-June and midJuly last year. That’s equivalent to less than two years’ likely growth in earnings – and the share price, too, assuming the rating remains unchanged.
The exit price is also at a historic price: earnings rating of only 15,8. So the buyers are hardly paying over the odds.
When I remarked to Peermont chairman Alan van Biljon – an old acquaintance from the days when he worked for SA’s gambling pioneer, Sol Kerzner – that it was a pity to see Peermont leaving the JSE, he replied that it may be back before too long. No doubt that’s the object of the exercise. Meanwhile, minority shareholders will lose out on growth in the intervening period.
And now it’s rumoured that disappointed bidders for Peermont may switch their interest to Gold Reef, whose full name – in another futile bid for respectability – was recently changed from Gold Reef Casinos to Gold Reef Resorts.
Gold Reef has just announced a 25% gain in 2006 HEPS to 127c/share, a little lower than the 29% gain at half time but still pretty good, though flattered by the damage done to the 2005 results by negative media reports on the Gold Reef theme park. Implementation of a new empowerment deal delayed declaration of the annual dividend but 51c was paid for 2005; so if cover is maintained that should be around 63c for 2006.
At 2 400c, on a p:e of 18,9 and estimated yield of 2,6%, Gold Reef may be a little more pricey than Peermont. Still, you could have picked up plenty of shares below 300c only five years ago, so it has also been a great investment – especially for the canny Krok brothers, who founded it – and would be missed.
Peermont’s market cap of R4,3bn and Gold Reef’s R5,4bn add up to less than that of the industry pioneer and leader, Sun International’s R14,7bn. Its recent interim figures to December 2006 disclosed rolling 12-month adjusted HEPS of 629c and dividends of 340c.
At 12 550c, that’s a p:e of 20 and yield of 2,7%, though you’d get a lower p:e if you take what Sun International calls its “basic” EPS of 865c.
Final and smallest member of the sector is horseracing operator Phumelela, with a market cap of just R1,1bn. It has a July financial year-end and the interim report will probably be out by the time you read this.
However, a trading update said basic EPS for the six months to January should be 110% to 120% higher than last year, helped by the R40m proceeds from termination of the Newmarket racecourse use agreement.
That tells us less than nothing about
Apart from Sun International, which may have been held back by its size and relative corporate maturity, the other three have all outperformed the index
for some years.
normal trading performance, but I’m sure it will turn out to have been satisfactory.
For what it’s worth, in the year to last July, HEPS were 82c and distribution 40c, giving a somewhat outdated p:e ratio of 18,2 and yield of 2,7% at the current 1 495c.
Apart from Sun International, which may have been held back by its size and relative corporate maturity, the other three have all outperformed the index for some years.
They should continue to do so. And whatever your moral attitude may be to gambling as an investor, you must hope that they’ll stay on the JSE boards for years.