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Punting on Purple

Johannesburg - There is never a dull moment at JSE-listed financial services Purple Capital [JSE:PPE].
 
Last the week the firm announced that it had bought Powerbet Gaming a local book-making operation.
 
What does a financial services firm see in a sports betting business?
 
Charles Savage, CEO of Purple Capital subsidiary Global Trader, a derivatives trading firm, explains that there are natural synergies between traders and punters and this will present opportunities to develop products.
 
"Considering Global Trader’s reach to over 6 000 funded accounts, making up more than R160 million in client capital and marketing networks that reach to well over 20 000 financial market participants and I think you start to understand the value of the client synergies."
 
Since its inception some 12 to 15 years ago, the local sports bookmaking industry has grown into a R5bn-a-year market with gross profit estimates of more than R500m per annum.
 
"What we find interesting is that the sports bookmaking industry opportunity looks very similar to our own core business, spread and CFD (contracts for difference)  trading, some ten years ago," he said.
 
Brent Graham from local sports betting site Good For The Game, describes the team at Powerbet for being "very entrepreneurial and competitive" in the local market.
 
Purple Capital itself has had a colourful few years listed on the JSE. CEO Mark Barnes was highly regarded in financial services circles and the original business was marketed as a way to get access to Barnes' deal-making skills. However the last three years have not been kind to the company with the share price sliding from a high of 230c in March 2007 to plug the depths of penny-stock territory.
 
A failed eleventh-hour bid to stop the sale of the Bond Exchange of South Africa (Besa) to the JSE summed up listed life for Purple. Lots of noise and fanfare but not much to show for its efforts.
 
Keith McLachlan an analyst at Standard Bank, told Fin24.com that there were some synergies between Global Trader and the sports betting operations. However they needed to start delivering some results.
 
"Global Trader SA (GTSA) basically cross-subsidised their loss-making corporate advisory investment banking operation. If they simply dumped that business, streamlined GTSA and plugged Voltbet into it, I’d be fairly bullish about their prospects."
 
Voltbet is part of the Powerbet stable.

Commenting at the end of the 2009 financial year, chairperson Mark Barnes told investors that it was "back to basics" for Purple. Basics comprising the Global Trader business and some corporate financing.

Much of its business still depends on the willingness of investors to participate in equity trading activity particularly in CFD market.
 
When Purple reported interim results to the end of February 2010, revenue was down year on year from R52m to R32m and its operating loss had shrunk from nearly R60m to under R8m. Cash in the bank was sitting at R32m while net asset value per share was sitting at 39c.

"We are practically debt-free now and have retained only core businesses where we have specific expertise, hands on operational influence and real growth prospects,” Barnes said.
 
One of Global Traders’ major competitors IdealCFDs was recently purchased by international giant IG Group in a vote of confidence for the local market.
 
Purple has also been busy in recent weeks. Apart from the Powerbet transaction, the firm announced at the start of September that it had purchased 75% of the WIP Treasury Solutions business. Empowerment group WIP Capital will retain a 25% stake in the business, strengthening Purple’s empowerment credentials.
 
The deal, Barnes says will give Purple "an impressive existing client base that includes large listed and unlisted entities and a number of the local operations of multi-nationals".
 
-  Fin24.com

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