The AGM of Hosken Consolidated Investments (HCI) last week ran for about 90 minutes and was another engaging affair. More companies — just once a year, for Pete’s sake! — should engage this seriously and openly with shareholders. It really is to everyone’s benefit.
The fact that the debt issue, which I raised in last week’s column, was given short thrift can probably be overlooked. Pretty much every other aspect of the business was amply covered.
Things could have got off to a rocky start when small-cap expert Anthony Clark mischievously raised the dreaded D-word — which has, on occasion, exasperated executives of other investment companies. Clark pointed out that with the share bouncing around a 52-week low, the current 58.8% discount to intrinsic NAV means HCI has snatched the “discount” crown from Brimstone Investment Corp.
While the discount looms large, at least talk was not cheap. HCI CEO Johnny Copelyn gave a very long answer — returning to the group’s scary Covid squeeze (when its cash-pumping casinos and hotels were closed) and then taking in a review of pretty much all the group’s operations.
Some of this was brutally honest — the challenges for the coal business, the time and effort spent on the failed lottery bid, hitches with smelter plans at the platinum investment, and the online gaming miss by Tsogo Sun (where the market rating has uncoupled ominously from rival Sun International).
While much shareholder focus at HCI has recently been on the offshore oil and gas exploration business, Copelyn did remind everyone just how important Tsogo is in the group’s value proposition. The ownership ratio sits at about seven Tsogo shares for every HCI share, meaning that for every 100c the gaming group sheds on its share price, HCI’s share price should retreat 700c.
Copelyn gave an assurance that strenuous efforts are under way to restore Tsogo’s fortunes, including the revamp of the Emerald casino on the banks of the Vaal River and transfer of an existing Western Cape casino licence to the vibrant urban node of Somerset West. These investments in physical casinos will be judged against the efforts by Sun International — which reports results shortly — in building out its highly profitable online gaming offering.
The main point, though, was Copelyn’s contention that narrowing the dastardly discount should not be undertaken at any cost
The main point, though, was Copelyn’s contention that narrowing the dastardly discount should not be undertaken at any cost. More patience might be needed. While HCI is not resisting obvious measures such as unbundling underlying investments, this would have to be done in a responsible manner. Copelyn noted that HCI had unbundled assets in the past — though I doubt younger investors will recall Softline, Unibank and Niveus.
Quite surprisingly, Copelyn contended that HCI has reached a stage with some of its investments where the holding company can no longer add value. With R2.6bn debt at centre, HCI would need to sell its control stakes in some of its significant investments to cull debt to levels where unbundlings could be considered.
First off, Copelyn reckoned HCI’s sprawling property portfolio could bring in a pretty penny, and the declining interest rates present a window to sell. More significant, however, was his contention that “if you’re looking for billions of rand to come into HCI, the most obvious asset to focus on is the hotels”. HCI owns about 45% of Southern Sun — which Copelyn maintains is a big enough stake for any investor to take control of what he regards as “by far the biggest and best hotel group in the country”.
Bearing in mind that the replacement cost of the group’s infrastructure would amount to R16-R17 a share, finding an investor who sees considerably more upside than Southern Sun’s current share price can’t be rushed. Copelyn noted: “For this you need to be patient… you can’t start selling off a R1bn piece of your R5bn asset.”
I was a little rattled by Copelyn’s update on HCI’s oil and gas exploration investments — which, for now, centre on the promising Venus discovery off Namibia. The key question remains: when will the oil flow? The general expectation is the end of 2029 or early 2030 — which is also HCI’s “best guess” at this juncture.
But there are rumblings that there is still some horse-trading between operator TotalEnergies and the Namibian government before the final investment decision (FID) is signed off. Copelyn reminded us that TotalEnergies had abandoned its exploration efforts off Mossel Bay after spending $400m — which, as he succinctly pointed out, amounts to about three days’ profit.
Nothing quite so dramatic is envisaged for Namibia, but Copelyn raised the possibility of a delay. The FID was expected in the first half of next year — possibly even the first quarter — and this would mean oil flowing in late 2029. This is worth watching, I reckon, given that oil was expected to replace gaming as HCI’s primary cash flow source in five years.
Just a quick footnote: Reader$, no doubt, $potted our currency $ymbol headlines. So far, no complaint$, compliment$ or querie$ — which $urprised me no end, considering our interactive readership base. I thought it a rather clever adverti$ing campaign, and one worth inve$ting in …
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