Goldrush spins out bumper profits as value of RAC stake rises

Gaming investment company RECM & Calibre (RAC) has increased the year-on-year value of its 58.8% stake in Goldrush by more than a quarter to R1.2bn after a marked increase in electronic bingo, slot machine and sports betting activity after the lifting of Covid-19 restrictions.

Last week RAC noted a “pleasing normalisation” in trading conditions for Goldrush.

The pickup in trading in electronic bingo terminals (EBT) and limited payout machines (LPMs) were already evident in casino giant Sun International’s recent interim results to end-June, when LPM specialist SunSlots was the star performer.

EBTs and LPMs are regarded as “minicasinos” with the added advantage of not needing the huge capital outlay to develop a casino precinct or requiring the ongoing maintenance costs for the upkeep of sprawling facilities.

Goldrush is now RAC’s sole investment after other portfolio investments were bundled into the Astoria listing.

In the interim period RAC reported that Goldrush’s earnings before interest, tax, depreciation and amortisation (ebitda) topped R188m — 45% ahead of the R129m recorded in the same period last year. RAC executive director Piet Viljoen said Goldrush has achieved its highest 12 month “rolling” ebitda of almost R398m — well ahead of the R334m notched over the same period in 2021.

RAC’s R1.2bn valuation for its Goldrush stake is based on a seven times ebitda multiple. The market seems to agree with RAC’s assessment with the share price holding at a 12-month high of R15.

Strong prospects

Paul Whitburn, a portfolio manager at Rozendal Partners, said the performance of Gold Rush points to bumper earnings for the alternative gaming sector in the next 12 months. Titanium capital founder Charles Boles said Goldrush has managed itself well through Covid-19 without needing additional funding, and is trading strongly.

Further evidence of strong prospects for the alternative gaming sector was seen last month when former merchant banker and horse racing enthusiast Gregory Bortz took an influential stake in Grand Parade Investments (GPI). GPI holds a 30% stake in sports betting business SunSlots.

Viljoen pointed out that Goldrush’s bumper profit was achieved with only a slight increase in the number of EBTs to 4,320 with gross gaming revenue at R502m.

Viljoen said management is engaging regulators to increase the number of terminals at properties where capacity is constrained. He said the Margate EBT operation has been relocated to the Durban CBD in the interim period.

Goldrush’s LPM operation also showed strong growth with revenue hitting R216m. Viljoen said this is in line with increased social activity after the lifting of Covid-19 restrictions. The number of LPMs increased 5.5% to 2,812 with further openings planned for the second half.

Goldrush is also making encouraging inroads into sports betting and online gaming with interim revenue of R54m and R40m respectively.

Viljoen said the era of online gaming has arrived in SA. “Many market participants are planning for it, and more competing offerings from local and international players are entering the market.”

Looking ahead, Viljoen stressed that Goldrush’s prospects rely on the optimisation of existing operations and growing the number of active gaming positions.

Viljoen also hinted strongly at share repurchases, noting that RAC now has the balance sheet flexibility to buy back “meaningful amounts of shares at discounts to our assessment of the underlying value of the company”.

As RAC’s net asset value at end-September was R17.64 a share, the share price is offering a discount of about 15%.