Refusing to be limited
Could Worcester casino be a bargaining chip?
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.