Investing in listed companies with interests in the gaming sector may be a dangerous gamble, but some are bound to hit the Johannesburg Stock Exchange (JSE) jackpot.
Legislation passed a year ago legalised casino gaming in South Africa for the first time, setting in place a race between local and international gaming companies for the licences put on offer. The announcement last week by the Gauteng gambling and betting board that it had awarded four of the six casino licences in the region only served to highlight the rollercoaster share price ride in store for companies competing for lucrative casino rights.
For the four out of 23 applicants successful so far in their bid – Afrisun, Emfuleni Safari Resort, Global Resorts and Tsogo Sun – the result was a strong run in their share prices. Samrand, which is behind the Emfuleni bid showed a close to 30% rise in its share price in the day following the casino licensing outcome, while Aquila Growth, which recently took a 30% stake in Global Resorts, saw the gods adding a similar value to its share price.
Trerexko, which holds the World Trade Centre where Global Resorts was awarded a licence, could sit back and cheer a near 65% rise in the value of its shares, while Afrisun parent Sun International South Africa also made substantial gains.
Of course, if you’d been an investor in one of the unsuccessful bid applications, the day following the casino outcome was not as rosy. Failed bids resulted in falling share prices for companies like Stocks Hotels and Resorts, Gallagher Estate and Karos Hotels.
Punters for Stocks and Gallagher would have seen nearly a third of the value of their shares wiped out following the announcement, a sobering indication of the dangers of high-risk, high-return share investments. For those willing to wager on the success – or not – of a casino licence there is good news in the fact that another two licences are due to be issued for Gauteng towards the end of March, while the Western Cape still has a number to give away.
Favourites for the Gauteng race are Johnnic’s bid at Gallagher Estate and the MoAfrika bid,also in the Midrand; while Akani’s Egoli bid at Gold Reef City is still considered in the running. MoAfrika last year unveiled plans to build a R2,5-billion retail and leisure centre in the next three years.
In terms of the licences still to be awarded in the Western Cape, Monex’s proposal at its Century City development outside Cape Town and Sun International South Africa both seem to be in with a good chance. The former has already enjoyed a strong run on its shares in the wake of its planned mega shopping centre and its multi-billion rand theme park – both of which are considered the largest such developments yet undertaken in South Africa.
Of course, not all the consortium’s bidding for casino licences offer their shares to the South African in the street. Culemborg Metropole Casino is a consortium bidding in the Western Cape that has major international participants including New York Stock Exchange-listed Ogden Entertainment, London Stock Exchange-listed London Clubs International and Marriott Hotels. Kangra (Pty) Ltd and other South African companies own a further 6,75% of the company bidding for the licence.
However, the consortium says that within two years of the opening of the temporary casinos, the company will be publicly listed on the JSE, with subscription incentives to residents of the Western Cape.
The future is clearly a gamble for listed companies with gaming interests, as the stock market fluctuations related to the Gauteng licence awards clearly indicates of both the potential rewards and pitfalls of this kind of investment.
But, for those with the gambling streak investing in companies with applications for casino licences still pending might provide even more of an adrenaline rush than a Saturday afternoon at the races.