Rais­ing stakes

Financial Mail - - MARKET WATCH - @mar­chasen­fuss

Shares in debt-laden gam­ing and leisure group Sun In­ter­na­tional have bounced off a 2018 low of R54.33, with the mar­ket seem­ingly ex­press­ing op­ti­mism around a R1.5bn rights is­sue. Sun will pitch new shares at R57.82/share in a rights of­fer par­tially un­der­writ­ten by turn­around/deep value spe­cial­ist Value Cap­i­tal Part­ners (VCP), which is al­ready in­volved in coun­ters such as PPC, Ad­corp, Al­tron, Novus and African Phoenix. Clearly the par­tic­i­pa­tion of VCP has short­ened the odds on a quick turn­around at Sun.

Not too long ago more than a few mar­ket participants — aghast at the omi­nously slow start at Sun’s Time Square casino in Pre­to­ria — were adamant that R1.5bn was not nearly enough fresh cap­i­tal to ease the group’s R15bn debt bur­den. Some mar­ket watch­ers are still bet­ting that Sun will hold an­other rights of­fer — this time deeply dis­counted — in the not too dis­tant fu­ture. Oth­ers reckon the sale of smaller casi­nos and cer­tain ho­tel prop­er­ties might also be on the cards, leav­ing Sun to fo­cus on larger prop­er­ties such as Grandwest in Cape Town, Sibaya in Dur­ban, and Car­ni­val City and Time Square in Gaut­eng.

A key in­di­ca­tor of Sun’s fate might be the per­for­mance of ri­val Tsogo Sun’s Gaut­eng casi­nos. Any dis­rup­tive in­flu­ence of Time Square on rev­enue lines and mar­gins will show in Tsogo’s com­ing re­sults. I get the feel­ing Tsogo ex­ec­u­tives aren’t ex­actly sweat­ing bul­lets . . .

Stronger for life

Long4life, the in­vest­ment firm launched last year by deal-mak­ing doyen Brian Joffe, is clearly look­ing to bag a big deal. Joffe last week told me the com­pany is still sub­scale and it needs to boost its mar­ket cap­i­tal­i­sa­tion to at least R10bn to be a real player.

So far Long4life has done as well as can be ex­pected, bag­ging a hand­ful of cash-gen­er­a­tive ac­qui­si­tions worth about R3.6bn. The big­gest of th­ese was the takeover of Hold­sport.

One imag­ines Joffe has had a look at dis­tressed sit­u­a­tions at, for ex­am­ple, Ed­con and Stein­hoff, where well-priced op­por­tu­ni­ties could be on of­fer.

In the in­terim, I think it might be worth watch­ing Long4life’s en­deav­ours in stretch­ing Hold­sport’s op­er­a­tional reach. Two new open­ings and an ex­pan­sion are planned for flag­ship brand Sports­mans Ware­house in the new fi­nan­cial year, and a smaller store con­cept with mod­i­fied fix­tures and de­sign is also be­ing rolled out. The first spin-off brand has also been launched with the open­ing of an OTG store spe­cial­is­ing in ac­tivewear for women. It re­mains to be seen whether Hold­sport’s pop­u­lar out­door brand, First As­cent, will also look to hike sales with stand­alone stores.

Most in­trigu­ing is the launch of a re­wards pro­gramme and an on­line sell­ing plat­form. Long4life, ob­vi­ously, is all about ac­quis­i­tive growth, but I sus­pect ef­forts to bulk up the sports and out­door seg­ment could be a game changer over the medium term.

Re­lated party

Share­hold­ers in Value Group will be cel­e­brat­ing the 22% hike in its fi­nal div­i­dend to 22c/share. This brings the ful­lyear to end-fe­bru­ary pay­out up 25% to 30c/share. But de­trac­tors will grum­ble about the R190m re­lated-party pay­ments made to CEO Steve Gottschalk for mainly prop­erty leases dur­ing the past fi­nan­cial year. The div­i­dend pay­ment is equiv­a­lent to about R53m — far less than the CEO got for his re­lat­ed­party ar­range­ment.

Hav­ing said that, share­hold­ers who were pre­pared to ac­cept the ar­gu­ment that Value could not get a bet­ter prop­erty leas­ing deal from ex­ter­nal par­ties have been well re­warded over the longer term. Over the past six years, a col­lec­tive 137c/share has been paid out to share­hold­ers. I’m not con­don­ing re­lated-party deals, but that is a sooth­ing yield, con­sid­er­ing that dur­ing that time there were op­por­tu­ni­ties for in­vestors to pick up Value shares for any­where be­tween 200c/share and 500c/share.

A key in­di­ca­tor of Sun’s fate might be the per­for­mance of ri­val Tsogo Sun’s Gaut­eng casi­nos

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