There was a time when Grand Parade Investments (GPI) “coulda been a contender”. Can it be a contender again? Well, that remains to be seen.
Back in 2008 when GPI listed on the JSE, after an interesting sojourn as an unlisted empowerment investment vehicle, there might have been an argument that the group represented the purest gaming investment.
Essentially, GPI owned a significant minority stake in SunWest International, the Sun International-controlled vehicle that operated the cash-spinning GrandWest Casino in Cape Town.
It might have turned out very differently if GPI had merely retained its interest in SunWest, and followed its natural instincts in building the cash-spinning Sun Slots limited payout machine offering. But it was not to be.
GPI was lured into the fast food sector, most notably a venture to bring the Burger King franchise to South Africa, which was perhaps too big a deal to swallow. Unfortunately, there were other tilts — such as Dunkin’ Donuts — that just chowed cash flow.
The food assets, including a stake in the redoubtable Spur Corp, are now long gone, and GPI again sits with a spread of gaming assets.
Aside from participation at GrandWest, there is its remaining 30% stake in Sun Slots as well as the small stake in the Golden Valley Casino in Worcester.
The portfolio spins cash and releases a decent enough dividend. GrandWest still holds considerable value, because it retains the monopoly on the Cape Town casino market. There is persistent talk of a second casino — but with online gaming growing at a rapid pace, enthusiasm from rival casino operators to invest in a second casino in Cape Town might be muted.
So, what do we have in GPI? Quality gaming assets in a mature — perhaps even ex-growth — sector that generate dependable cash flows. It’s hardly exciting.
This then begs the question of why GPI trades at a considerable premium to intrinsic NAV — especially when the JSE’s investment companies can attract discounts of between 30% and 50% on their respective intrinsic NAV.
One factor is the emergence of Greg Bortz, a former investment banker and gaming sector enthusiast, as the controlling shareholder at GPI. Bortz’s play for GPI, interestingly, triggered gaming giant Sun International to take a major stake in the firm. This is hardly surprising, considering Sun’s determination to buy out minority shareholders in its gaming operations to secure 100% of the valuable cash flows.
GPI is evaluating new betting opportunities in the horse racing sector ... and is in discussions with numerous potential partners
As such, GPI is interestingly poised. Sun obviously has bigger fish to fry in the short term, in the form of the takeover of rival casino group Peermont. But at some stage, Sun will revisit efforts to secure 100% of cash-spinning assets such as GrandWest and Sun Slots.
In the meantime, GPI might make some running of its own. Much has already been made of Bortz’s involvement in “rescuing” the Kenilworth racecourse and, more recently, a similar scheme to bail out racing in KwaZulu-Natal.
Naturally, there has been speculation that Bortz might reverse list these horse racing assets into GPI. That might not be the case.
Something far more interesting might be afoot. The clue lies in GPI’s latest circular to shareholders, which relates to what might seem like an innocuous share issue to BEE investors.
But on page 18 of that circular, under the heading “Prospects of GPI”, there is a telling admission: “GPI is evaluating new betting opportunities in the horse racing sector (through totalisator-linked betting machines), and is in discussions with numerous potential partners for prospective partnerships in the event these opportunities come to fruition.”
One might be inclined to speculate that GPI could be linked to efforts to revitalise the Kenilworth racecourse by supplementing betting on the gee-gees with a slot machine emporium.
This might include historical horse racing offerings — which has proved immensely popular in the US — to launch what is these days commonly known as a “racino”.
Admittedly. GPI’s premium is saddled to a fair deal of ifs and buts. But Bortz clearly did not take control of GPI just to collect dividends from existing gaming investments.
As the gaming sector transforms rapidly with the popularity of online gaming off huge sports betting sites such as Hollywoodbets and Betway, GPI might find itself nicely positioned to catch the upside of a sector in flux.
This might not be a short-term play — and the share price might still drift down after the release of full-year results and the dividend declaration. But IM would recommend keeping a close eye on what might be fast-changing odds.
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