Shares in debt-laden gaming and leisure group Sun International have bounced off a 2018 low of R54.33, with the market seemingly expressing optimism around a R1.5bn rights issue.
Sun will pitch new shares at R57.82/share in a rights offer partially underwritten by turnaround/deep value specialist Value Capital Partners (VCP), which is already involved in counters such as PPC, Adcorp, Altron, Novus and African Phoenix. Clearly the participation of VCP has shortened the odds on a quick turnaround at Sun.
Not too long ago more than a few market participants — aghast at the ominously slow start at Sun’s Time Square casino in Pretoria — were adamant that R1.5bn was not nearly enough fresh capital to ease the group’s R15bn debt burden. Some market watchers are still betting that Sun will hold another rights offer — this time deeply discounted — in the not too distant future. Others reckon the sale of smaller casinos and certain hotel properties might also be on the cards, leaving Sun to focus on larger properties such as GrandWest in Cape Town, Sibaya in Durban, and Carnival City and Time Square in Gauteng.
A key indicator of Sun’s fate might be the performance of rival Tsogo Sun’s Gauteng casinos. Any disruptive influence of Time Square on revenue lines and margins will show in Tsogo’s coming results. I get the feeling Tsogo executives aren’t exactly sweating bullets ...
Stronger for life
Long4Life, the investment firm launched last year by deal-making doyen Brian Joffe, is clearly looking to bag a big deal. Joffe last week told me the company is still subscale and it needs to boost its market capitalisation to at least R10bn to be a real player.
So far Long4Life has done as well as can be expected, bagging a handful of cash-generative acquisitions worth about R3.6bn. The biggest of these was the takeover of Holdsport.
One imagines Joffe has had a look at distressed situations at, for example, Edcon and Steinhoff, where well-priced opportunities could be on offer.
In the interim, I think it might be worth watching Long4Life’s endeavours in stretching Holdsport’s operational reach. Two new openings and an expansion are planned for flagship brand Sportsmans Warehouse in the new financial year, and a smaller store concept with modified fixtures and design is also being rolled out. The first spin-off brand has also been launched with the opening of an OTG store specialising in activewear for women. It remains to be seen whether Holdsport’s popular outdoor brand, First Ascent, will also look to hike sales with standalone stores.
Most intriguing is the launch of a rewards programme and an online selling platform. Long4Life, obviously, is all about acquisitive growth, but I suspect efforts to bulk up the sports and outdoor segment could be a game changer over the medium term.
Related party
Shareholders in Value Group will be celebrating the 22% hike in its final dividend to 22c/share. This brings the full-year to end-February payout up 25% to 30c/share. But detractors will grumble about the R190m related-party payments made to CEO Steve Gottschalk for mainly property leases during the past financial year. The dividend payment is equivalent to about R53m — far less than the CEO got for his related-party arrangement.
Having said that, shareholders who were prepared to accept the argument that Value could not get a better property leasing deal from external parties have been well rewarded over the longer term. Over the past six years, a collective 137c/share has been paid out to shareholders. I’m not condoning related-party deals, but that is a soothing yield, considering that during that time there were opportunities for investors to pick up Value shares for anywhere between 200c/share and 500c/share.
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