The market seems to have great difficulty plotting the value of Niveus, the alternative gaming play controlled by Hosken Consolidated Investments (HCI).

Niveus owns Vukani Gaming (an operator of limited payout machines, or LPMs) and Galaxy Bingo (which operates electronic bingo terminals, or EBTs), as well as 57% of liquor group KWV Holdings and an influential stake in the (small) Kuruman casino.

At the end of January the share slumped to R13.18, apparently as a significant investor became a forced seller. The share has since recovered to over R22, but the market valuation seems to dilute the effects of the proposed sale of the operating assets out of KWV for R1.1bn. On paper, proceeds of R1.1bn would equate to over 500c/share, though it is reasonable to discount this figure because the actual settlement is paid over in monthly instalments over 36 months.

But over and above the proposed KWV asset sale are the so-called "heritage assets" that remain behind at KWV — most notably coveted wineland properties like Laborie and La Concorde as well as a splendid collection of local art. These carry an implied value of R300m, but a figure of between R500m and R800m might be a more realistic assessment, especially when considering the redevelopment potential at the properties.

The bottom line is that Niveus’ investment in KWV does provide some reassuring bed-rock value. This makes for a rather intriguing assessment of Niveus’ alternative gaming operations, which kicked in earnings before interest, taxes, depreciation, and amortisation (Ebitda) of R348m and headline earnings of R129m in the year to end March. The LPM operations are somewhat easier to value in that a recent deal between Sun International and Grand Parade Investments offers a framework.

Sun bought control (on a staggered basis) of the LPM operations of Grand Parade Investments on a 7.5 times Ebitda multiple. Vukani’s LPM operations (including losses from the fledgling sports betting arm) chipped in Ebitda of R291m. If we apply a 7.5 times Ebitda multiple to Vukani, Niveus’ LPM operations hold a value of over R2bn. If we add the implied value of KWV’s sale assets and the legacy assets, and factor in a smidgen of debt, we pretty much have the current market capitalisation.

This means the market — admittedly devoid of institutional interests — is writing down the value of Niveus’ profitable EBT operations to zero.

I think those odds are wrong. Galaxy Gaming almost doubled Ebitda to R62m from its 1,642 EBTs, but more importantly, fully developed sites contributed R130m before considering head-office cost, development and bid costs, start-up costs and trading losses. Niveus has lately, though, been highlighting that legislative changes remain the biggest threat to prospects, citing in the recent financial report the department of trade & industry’s national gambling policy.

Specifically, Niveus says the policy still contains provisions that are negative for the bingo industry, especially regarding the number and type of EBTs. Niveus has already hit snags in KwaZulu Natal, where the finance MEC has challenged its bingo licences and EBT awards.

These legislative impediments are frustrating, but not a big enough risk to diminish prospects for EBTs so drastically.

For those willing to call the "legislative bluff", Niveus offers great odds for the longer term.

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