Gaming and hotel group Tsogo Sun has finally bought investment firm Trematon’s 26.9% stake in the Mykonos casino in Langebaan, on the West Coast. Though it is one of SA’s smallest casinos, there are punters who believe Mykonos would be the obvious candidate if the Western Cape government allows an existing casino licence to be transferred to the Cape Town Metropole (where Sun International’s GrandWest has enjoyed an extended period of exclusivity).
Interestingly, Trematon "inherited" the Mykonos casino when it acquired Club Mykonos Langebaan (CML) more than a decade ago.
Buying into CML — which owns swathes of leisure real estate — initially raised eyebrows, as the greater Saldanha area has long been a depressed industrial hub. But initiatives to revive the West Coast economy have certainly helped in recent years, and CML is proving to be one of Trematon’s smartest investments. What’s more, the value unlock from the Tsogo deal will provide a welcome boost to the balance sheet after the company acquired a sizeable property portfolio from Redefine recently.
However, developments at Trematon do highlight the difficulty investors have in valuing low-key (and conservatively managed) investment companies. A day before announcing the Tsogo deal, Trematon published its year to end-August results, which valued the stake in the Mykonos casino at R97m. Barely 24 hours later it was announced that Tsogo had acquired that stake for R190m, executed via a share-repurchase arrangement.
It seems a decent enough exit price, as the Mykonos casino chipped in almost R11m to Trematon’s profits. One needs to remember Trematon could not add value to the investment as a minority partner. Trematon CEO Arnie Shapiro felt it prudent to sell the casino stake and redirect the cash into investments that will generate better internal rates of return. In this regard, investors may want to pay close attention to Trematon’s fledgling private-education investment, Generation Schools.
Curiously, the Mykonos value unlock has done little to spark enthusiasm for Trematon’s shares. At the time of writing, the share was offered at 300c on the JSE, compared with an intrinsic net asset value of 368c/share at the end of August.
No shouts of ‘ bingo’ yet
Staying on the topic of gaming assets and Tsogo Sun, I note that Hosken Consolidated Investments (HCI)-controlled Niveus, a specialist in limited payout machines and electronic bingo terminals, remains under cautionary. Rumours suggest Tsogo (in which HCI is also the anchor shareholder) is set to acquire Niveus. I know that a while back Niveus had no cravings for alternative gaming assets — but, as we know, things can change quickly in corporate SA.
What is causing some conjecture in the market is the price tag for the alternative gaming assets, which do spin a fair bit of cash. An added complication may be whether the property and heritage assets, left over after the recent KWV sale and housed under La Concorde, might be left behind in Niveus.
The big bird circles?
Chris Schutte, CEO of JSE "big bird" Astral Foods, is sure there will be more consolidation in the poultry sector. He points out that there have been a dozen local casualties in the past three years (some of them well-established, medium-sized operations) as a combination of cheap imports and higher input costs have pecked away at operating margins.
Though there are glimmers of hope , chicken businesses will have to survive for a fairly long trading period before margins fatten to more viable levels. So while Sovereign Food Investments is desperately holding off the advances of rival Country Bird Holdings, I wonder if Astral — which still has a stout balance sheet — will swoop on Daybreak Farms (the old Afgri chicken business).
* The writer holds shares in Trematon