Re­fus­ing to be limited

Could Worces­ter casino be a bar­gain­ing chip?

Finweek English Edition - - COMPANIES & MARKETS - MARC HASEN­FUSS march@fin­week.co.za

EM­POW­ER­MENT GROUP Grand Pa­rade In­vest­ments (GPI) re­cently put the fin­ish­ing touches to its deal to buy full con­trol of limited pay­out ma­chine (LPM) op­er­a­tor Thuo Gam­ing. How­ever, the R170m LPM deal hasn’t re­ally sparked sen­ti­ment for GPI – de­spite re­peated as­ser­tions by ex­ec­u­tives the deal sig­ni­fies the com­pany’s swing from an in­vest­ment ve­hi­cle to an op­er­at­ing en­tity.

There could be two rea­sons for the mar­ket re­main­ing aloof. GPI is still per­ceived as merely a pas­sive em­pow­er­ment part­ner at Sun In­ter­na­tional’s Sun­West sub­sidiary (which op­er­ates the Grand West casino in Cape Town) and the LPM mar­ket is still re­garded as the “poor cousin” of South Africa’s gam­ing fam­ily.

Those fac­tors are in­ter-re­lated, be­cause the LPM ven­ture is – along with the de­ci­sion to buy a strate­gic stake in gam­ing in­vest­ment group Real Africa Hold­ings (RAH) – is all the ev­i­dence the mar­ket needs to con­clude GPI isn’t con­tent to sim­ply bask in Sun In­ter­na­tional’s glow.

The LPM sec­tor is clearly vi­able once

crit­i­cal mass has been achieved. While man­ag­ing thou­sands of mini slot ma­chines spread across per­haps hun­dreds of bars and restau­rants is de­mand­ing, there isn’t a heavy de­mand on cap­i­tal ex­pen­di­ture.

You get the sense that with Thuo Gam­ing com­pletely un­der the con­trol of GPI, a con­certed ef­fort will be made to shift op­er­a­tions – cur­rently in the Western Cape and KwaZulu-Natal – into the lu­cra­tive Gaut­eng mar­ket. The pos­si­bil­ity of GPI ex­pand­ing its LPM op­er­a­tions – which don’t come with a heavy cap­i­tal cost – into other African coun­tries should also not be dis­counted.

Chair­man Hassen Adams says GPI has set a medium-term tar­get of 5 000 LPM ma­chines – more than dou­ble the cur­rent 2 000. And he has no doubt there will be a mean­ing­ful con­tri­bu­tion to GPI’s bot­tom line. “I call our LPM’s ‘capex free gam­ing in­vest­ments’ and be­lieve – within a few years – those will con­sid­er­ably broaden our earn­ings base.”

While the LPMs carry an op­er­a­tional im­per­a­tive, peo­ple shouldn’t lose sight of GPI’s abil­ity to move and shake in the casino sec­tor. In that re­gard it holds two po­ten­tial trump cards. The first is the fact the Sun­West con­tract with Sun In­ter­na­tional Man­age­ment Ltd ex­pires in 2015.

Fin­week reck­ons it’s not far-fetched to sug­gest GPI – which holds 33,5% of Sun­West and a vot­ing in­ter­est of more than 50% – might de­mand a more mean­ing­ful role in the man­age­ment of the Cape-based casino as­sets.

The other trump card is GPI’s 30% stake in RAH, which holds valu­able mi­nor­ity stakes in Sun In­ter­na­tional casi­nos in Gaut­eng, Dur­ban and Cape Town. Sun In­ter­na­tional holds more than 65% of RAH, mean­ing there’s lit­tle free float in the com­pany’s shares. It would make sense for Sun In­ter­na­tional to buy out the RAH stake held by GPI, and the few re­main­ing mi­nor­ity share­hold­ers.

Fin­week has pre­vi­ously spec­u­lated GPI could be con­vinced to swop its RAH stake for ad­di­tional shares in one of Sun In­ter­na­tional’s big­ger casi­nos.

Fin­week won­ders whether GPI would be keen to use its RAH stake to ne­go­ti­ate a big­ger (read: “con­trol­ling”) stake in the Golden Val­ley casino in Worces­ter? With Western Cape gam­ing au­thor­i­ties set to al­low an ex­ist­ing pro­vin­cial casino li­cence to be trans­ferred to Cape Town, the Worces­ter casino would add more than an ex­tra op­er­a­tional di­men­sion to GPI.

HASSEN ADAMS

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