Is Hassen Adams the man to pull Grand Parade’s shares out of their present nosedive? Or is the company’s charismatic founder and executive chair the biggest risk to a re-rating of its deeply undervalued stock?
It’s the question frustrated shareholders are grappling with following the shock resignation of CFO Shaun Barends, just one month after newly installed CEO Tasneem Karriem announced she too was standing down.
Grand Parade owns the potentially lucrative Burger King licence in SA, as well as Dunkin’ Donuts, Baskin-Robbins and a clutch of money-spinning casino assets, but has shed 55% in value over the past two and a half years. This has taken its market price to less than a third of its intrinsic NAV of 693c/share as of its interim results ended December.
That’s all the more puzzling given that its assets, say analysts, are all cash-generative, liquid and easily valued.
Investec Asset Management small-caps portfolio manager Andrew Joannou says the mismatch between what the market thinks Grand Parade is worth and its asset value could be due to concerns about the group’s corporate governance — heightened by the imminent departure of both CEO and CFO.
Stock market watcher and former fund manager Craig Martin went a step further.
After Barends’ announcement, he tweeted: "I appeal to Dylan Pienaar [former CFO], Tasneem Karriem, Shaun Barends, Alan Keet [former CEO] to speak out about Hassen Adams and GPI’s ‘shady’ practices so that all shareholders know the truth — regardless of the consequences!"
Asked what he plans to do about jumpy shareholders, Adams launches into a diatribe against those he believes are out to "capture" Grand Parade.
"I have been offered more than double the share price from people who want to buy me out," he says. "They want to capture GPI, sell the gaming assets and then they sit with all the billions of rands of food assets for nothing, that’s how greedy the market is out there.
"They don’t understand where we come from. Then they create all of these nuances. It’s not for sale," he says.
Adams then says he’s "happy to engage" with his long-term investors but can’t do it before the company releases its year to June numbers.
"You think I don’t want to step down as executive chair? I want to go and enjoy my life too, but I am the man who started this business and I’m committed to hold the rudder of this ship and take it into calmer waters even if I have to defer my retirement."
Clearly, though, the departure of his top executive team, twice over in two years, is without precedent, though Adams says it’s all perfectly explicable.
In the case of Karriem, who spent just two years at Grand Parade, one of them as CEO, "she’s resigning because she wants to go back to family life, she’s got two small kids at school and it’s very awkward. It’s a hectic job," says Adams.
As for CFO Barends, who’ll leave at the end of June, "he said to me he’s not an FD, he’s a bean counter," Adams says.
Grand Parade has already earmarked three potential candidates to replace Barends and will likely announce a successor before he leaves.
But the CEO position "is a little bit more complicated," says Adams. "I think that we’ll find someone in the market in the next couple of months but I’m happy to carry on holding the baton till our results in June, but that’s also not a problem: I’ve been holding Tasneem’s hand since she started."
Asked about former CEO Keet and former CFO Pienaar, Adams is scathing.
"If I’d had to carry on with [Keet] this company would have gone down."
Adams says Keet "wanted me to sign an agreement where I’d give him the food company to run and he had the right to trigger a liquidity event, which meant that if he wanted to sell the food group he had a right to do that and I disagreed because as far as I’m concerned that was a quick fix to sell the silverware to make money for yourself."
While Keet was a "bad decision," Adams says Pienaar "tried to develop systems which failed, it cost us millions, and then he wanted to move over to the food group and I did not want to make the FD a food MD.
"In Alan’s [Keet’s] case we asked him to go, Dylan [Pienaar] decided he wanted to go. You see the most important thing in the minds of these guys is that I’m the one who’s pushing them over the edge — quite the contrary."
The board, says Adams, has the final say, and "all that I can do is present my case to them in terms of employability. [The executives] need to conduct themselves in a manner that befits the position and then the board decides – it’s not my decision."
When contacted by the FM, Keet said he’d signed a nondisclosure agreement and could not comment, while Pienaar has now fetched up at fellow restaurant group Taste Holdings as acting CFO.
Clearly, Adams is still the force to be reckoned with at GPI. As founder of the company he owns almost 13% of its stock — making him the single biggest shareholder.
Foord Asset management owns 6.76%, Investec owns 5.05% and Sanlam holds 3.5% of the shares. Neither Foord nor Sanlam responded to requests for comment.
This is partly why analysts are so puzzled. Joannou says Adams "is as incentivised as we are to have the share price reflect the company’s true value".
Perhaps. But Adams, unlike other shareholders, is well remunerated for his efforts. In 2016 he earned a bonus of R3.5m, on top of a basic salary package of R3.1m.
In 2017, his bonus soared to R10.7m, on top of a fixed salary of R4.33m — a jump of 205%.
Adams says he accepted a lower salary on condition that he earned a success fee for a number of major transactions — including the 2016 sale of Grand Parade’s 10% stake in the SunWest Casino to Tsogo Sun for R675m, and a 19.9% stake in GPI slots to Sun International, for R262m.
"I took it over the line," he says.
But, isn’t that part of the job?
"It’s less than [GPI] would have paid to a merchant bank or any other group. Everything can be interrogated. There is nothing to suspect of any misdoing. Before I pay myself, the board must approve it. Do you think we’re running a Mickey Mouse business like some of these institutions that have gone pear shaped? No! We have gone through the right corporate governance. And let me tell you something else: when I got my incentive I shared it with all the other executives including Alan and Tasneem and all of those. I could have kept it to myself."
Still, Grand Parade’s corporate costs are a big worry for some investors. They gobbled up a staggering R43.8m in the 2017 financial year and an even heftier R73.5m in 2016. That’s considerable if you consider that its gaming and leisure businesses contributed R103.7m to headline earnings in 2017.
But Adams is convinced that a generally weak market for fast food groups is the culprit for GPI’s share price woes.
In some ways he has reason: shares in Taste Holdings, owner of the Starbucks and Domino’s franchises, have lost 80% of their value in the past two years, while big daddy Famous Brands is down 22% and Spur, in which Grand Parade has a 17.8% stake, has dropped 20%.
Grand Parade, like Taste, has staked plenty on the success of its Burger King brand, investing around R700m to date on its corporate-owned stores and burger patty manufacturing plant. Though it contributed a negative R5.7m to headline earnings in the interim period, Burger King grew sales by 15% to R366m and has now hit its 80-store target.
Burger King’s economics were the key reason that former shareholder Anchor Capital sold out in 2014.
Portfolio manager Sean Ashton says: "We took a view that this was not an asset they were going to be able to scale in a profitable manner."
But Adams is adamant that Burger King is "looking at a totally different era; it’s now profitable and once [it] starts to show its face in the market it will be a different picture altogether".
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