MARC HASENFUSS: Is a little glitter returning to Goldrush?

It’s churlish, I know, to point out that Goldrush Holdings’ share price has none of the lustre seen on gold mining shares, which have rocketed with the recent surge in bullion prices.

Goldrush, fittingly, once did have a little gold mine — in the days before Covid infected and quarantined discretionary spending. The group’s investment in a well-managed portfolio of electronic bingo terminals (EBTs) and limited-payout machines (LPMs) generated reassuring cash flows and grew steadily. There was a time when the EBTs and LPMs were markedly outperforming their larger gaming cousins, the urban casinos.

Recent results from Goldrush, Tsogo Sun and Sun International show that the growth in these alternative gaming formats has slowed to a gentle crawl. EBTs and LPMs are still reliable cash generators, but there is a distinct whiff of ex-growth about operations now that sports betting and online gaming are scooping up great swathes of gambling spend.

So, it was rather intriguing to see a cautionary from Goldrush last week, announcing negotiations “regarding a potential expansion of the group’s business activities”. It’s this expansion that, I believe, could bring a bit of glitter to Goldrush. Initially, I had hoped that Goldrush had found a way of bulking up its sports betting and online games offering — the segment has been sprightly, with gross gaming revenue up 102% to R115m in the half-year ended September 2024.

But recent media speculation, which I think does carry some weight, suggests Goldrush is part of a consortium that has emerged as the preferred bidder for the lucrative eight-year licence to operate South Africa’s national lottery.

If Goldrush saw fit to issue a cautionary — and if this does relate to pending lottery developments — then perhaps the arduous and controversial process is nearing resolution. Interestingly, the Goldrush share price has not reacted that strongly — up about 10% over seven days (at the time of writing) and still not too far from a career low of 498c. With so much uncertainty and controversy around the long-awaited awarding of the lottery licence, I suppose investors are not wanting to jump the gun.

Older readers may recall the first lottery licence award back in the 1990s. Admiral Leisure — which, if memory serves, was set up specifically to grab this lucrative prize — was the outright front-runner with a share price that had run up in keen anticipation. Admiral, however, was not the successful bidder, and that little setback left its shareholders with little more than the shirts on their backs. About 10 years ago, gaming investment company Grand Parade Investments (GPI) was also a front-runner to manage the lottery. That, too, didn’t transpire.

Interestingly, the Goldrush share price has not reacted that strongly — up about 10% over seven days

It would be a wonderful stroke of fortune if Goldrush, as part of the consortium, did get the lottery licence. The annual management fees are highly profitable, but pencilling in Goldrush’s possible share would be recklessly premature. Still, regular lottery management fee flows would be a potential game-changer for Goldrush — not only adding further operational diversity from the EBT and LPM core but also opening opportunities for dealmaking to expand the gaming portfolio.

The prime movers of JSE-listed Goldrush Holdings — which holds almost 60% of the Goldrush gaming business — are well-known asset managers Piet Viljoen and Jan van Niekerk. They are the type of investors who buy assets that most punters are scampering away from … sometimes successfully (Outdoor Investment Holdings and an unlisted Dis-Chem) and other times not so successfully (Distribution & Warehousing Network and CNA). So, it made sense when my gaming sources suggested Goldrush’s cautionary might be about looking at possible deals with casino giant Sun International and GPI.

It’s worth noting that neither Sun nor GPI is under cautionary — which, I suppose, narrows the odds on the lottery award speculation. But there is a view that Goldrush should look at a tie-up with GPI, these days headed by gaming sector enthusiast and investment banker Greg Bortz.

The theory — and it’s just a theory — is that GPI could “swap” its minority stakes in casino precincts GrandWest and Golden Valley (in Worcester) for Sun’s 70% stake in LPM business Sun Slots. GPI still holds a 30% stake in Sun Slots. Sun has expressed a desire to own 100% of the cash flows from its casinos, and GrandWest remains a lucrative property (with an extended monopoly in Cape Town). A merged Goldrush-GPI slots business would be a formidable force with a potential X factor.

One has to remember GPI’s plans to secure a “racino” (a popular pastime in the US, offering odds on historic horse racing events) licence for possible use at the Kenilworth Racecourse (which Bortz is also a major shareholder in). It sounds feasible on paper, but Goldrush has previously indicated it has scope to expand its slots business without having to resort to acquisitions. GPI might also prefer to tie up an enlarged slots operation by partnering with a large casino group such as Tsogo Sun, which might offer interesting permutations considering both have minority stakes in SunWest (which operates the GrandWest and Golden Valley casinos).

Let’s see if the lottery licence gets awarded in the next two weeks and then whether that development sparks a reshuffling of cards in the gaming sector. Don’t bet on either, though.