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LISTED STOCKS – THE DARK HORSES

Phumelela is working on creating ‘racinos’ with other forms of gaming.

The choices for investors in the gaming sector are limited mainly to two large casino groups: Sun International (SunInt) and Tsogo Sun. And there’s an opportunity to roll a diversified dice with Hosken Consolidated Investments (HCI), which holds a controlling stake in Tsogo and has other gaming interests in limited payout machines (LPMs) and bingo.

But the choice is not so narrow if investors dig a little deeper into some of the JSE’s smaller listings — notwithstanding the recent delisting of Real Africa Holdings ( which held minority stakes in SunInt’s four biggest SA casinos) and Cape Empowerment’s decision to dispose of its gaming interests.

At the moment Grand Parade Investments (GPI) ranks as the most substantial alternative gaming stock with sizeable minority holdings in the GrandWest (Cape Town) and Golden Valley (Worcester) casinos. GPI also owns sprawling LPM operations.

The company’s selling point is that its share price trades at a substantial discount to the intrinsic value (358c/share) placed on some of SA’s best gaming operations. What’s more, cash-flush GPI has been a payer of rather good dividends over the past few years, a pattern chairman Hassan Adams is keen to maintain for the company’s large community shareholder base.

What might be restraining sentiment is a change in strategic direction announced by the company last year, involving transforming the gaming-aligned investment focus into a broader investment mandate. No new (or non gaming) deals have been disclosed yet, but details of the first thrust at diversification are keenly awaited.

But new endeavours might also intensify the gaming focus . Adams has openly declared the company’s determination to pursue online gaming opportunities when they arise (see box on online gaming, page 33).

And perhaps it’s not wise to write off further participation in the casino industry by GPI, which has already shown a dab hand in deal-making when it wedged itself into RAH and profitably leveraged that position to make a superb short-term turn. Its cash-flush position could easily have it buying a grouping of small casinos — if , of course, one or two of the big gaming companies were sellers.

Another listing with a stake in the casino sector is Trematon Capital Investments, an investment company led by former fund manager Arnold Shapiro and property guru Allan Groll.

Trematon owns 92% (and is currently bidding for 100%) of Club Mykonos Langebaan , which in turn holds a 29,6% stake in the Mykonos casino. The Mykonos casino is controlled and operated by Tsogo, presumably awfully keen to wrap up the minority stake owned by Trematon. What makes the stake in this small West Coast casino so attractive is that the Mykonos casino is widely tipped to be the successful applicant to move its Western Cape casino licence to the Cape Town metropole (see page 32).

The dark horse on the gaming track is without doubt Phumelela Gaming & Leisure, a company that, despite being saddled with tired horse-racing assets, is finding fresh legs in adapting its core business to new gaming variations.

The company has already taken a sizeable slice of the sports betting market with Betting World , a company which should be expanding its offering extensively in the next few years.

CEO Rian du Plessis says Phumelela is also working on creating “racinos” by offering other forms of gaming — sports betting and medium payout machines — at its tracks.

Even if investors regard Phumelela as the “old economy” segment of the gaming sector, there are few hot to trot contenders that can match the company’s consistent cash flows and regular dividend distributions.

Source: Financial Mail – Marc Hasenfuss