The latest interim results from gaming investment company Grand Parade Investments (GPI) were solid enough, but the market may have been hoping for a breakthrough in the long impasse at Real Africa Holdings (RAH). Although GPI has seen numerous spikes over the past three months (some that even took the price through 300c), the truth is the company is still trading at a substantial discount to its last stated tangible net asset value of 355c/share.
GPI shareholders (and Finweek, for that matter) have been hoping GPI – chaired by the tough-as-teak Hassen Adams – may have leveraged its 30% stake in RAH to bolster its investment positions at one of Sun International’s cash-spinning casinos.
For those unfamiliar with the RAH arrangement, Sun International (with a 65% stake) and GPI hold almost all the issued shares in RAH. While that lack of liquidity precludes the market taking much interest in RAH these days, it does own significant minority stakes in four of Sun International’s best casinos in Cape Town, Durban, Gauteng and Port Elizabeth.
Market talk has lately swirled around a transaction that would see GPI “bartering” its RAH stake in return for a larger holding in the Grand West casino in Cape Town. Second prize would be a significant direct stake in one of the other larger urban casinos.
But Sun International would probably be lynched by its shareholders (which include Allan Gray) if any segment of its cash-spinning casinos was used as currency in any RAH negotiations.
So don’t be surprised if GPI takes a cash settlement for its stake in RAH – a transaction its “unexcited” share price might be pointing to.
To be frank, GPI is hardly in urgent need of cash. Its debt is very manageable and cash generation from its underlying casino and limited payout machine operations is reassuring enough (so much so some decent dividends have been maintained).
There’s also the risk cash proceeds from the sale of the 30% stake in RAH could burn a hole in GPI’s pockets as sizeable gaming opportunities in SA are currently few and far between.
Obviously, there will be a temptation for GPI to declare a special dividend – especially if Sun International coughs up a generous price to buy out the RAH shares (and we suspect that will be the case in order to send other minority shareholders happily on their way).
At current prices, GPI’s stake in RAH is worth over R500m. However, Finweek doubts GPI would be bailing out of RAH at anything but a premium price.
In any event, GPI will (after selling out of RAH) be able to clear its current borrowings and have a fair chunk of cash left over.
We might speculate GPI could broaden its sphere of interest from gaming into the wider leisure sector. But if diversification is on the cards, would there be a temptation to look even further – perhaps re-jigging GPI as a straightforward empowerment investment vehicle with a diversified portfolio of assets?
Goodness knows there are plenty of well-priced investment opportunities for well-managed and cash-flush empowerment companies.
In fact, it may be argued there are too few well-capitalised empowerment companies with broad (read: less riskier) investment profiles these days – with only HCI and Brimstone springing to mind. Could more diversified GPI be (another) contender?
But would GPI shareholders – many being community based – be keen for GPI to glance away from the regular profit churn of the gaming sector?