The announcement that Brait shareholders will be forced to cough up R2bn to bail out another executive incentive scheme, the members of which stood to gain hundreds of millions of rand of profit, may have a familiar and bitter feeling to it.
In 2018, shareholders of Steinhoff Africa Retail (subsequently renamed Pepkor) were informed they would have to pay R500m to bail out executives who faced multimillion-rand liabilities linked to the Steinhoff share price. The year before, Shoprite shareholders were faced with the repurchase of R1.7bn worth of shares from former CEO Whitey Basson as the result of a little-known agreement that had existed between Basson and the company.
The familiar thread through all of this is Christo Wiese, who is himself involved in a bid to persuade Shoprite shareholders to pay about R4bn for his Shoprite deferred shares.
In the case of Pepkor the shareholders could take some comfort from the fact the executives had generated value and the collapse in the Steinhoff share could not be laid at their feet. All in all, it was just a really badly designed incentive scheme. And over at Shoprite, the repurchase did land shareholders with a hefty bill that will dent profits for some time to come, but Basson helped to create a lot of value. And, importantly, the shareholders did get to vote on the issue.
The situation at Brait is significantly grimmer and leaves a very bitter taste. It is a story of remarkable hubris. The executives have created little in the way of value over the long term and in recent years have destroyed billions of rand of it. And, although the proposal involves a specific repurchase of shares (as at Shoprite) shareholders will not have an opportunity to vote on it. Brait is registered in Malta and has its primary listing on the Luxembourg Stock Exchange, so there’s no requirement for a shareholder vote.
Limited payout business investment a smart move from Sun International
Investors might still be miffed at gaming group Sun International’s ill-timed decision to gear up for a massive investment in Time Square casino, even if there are encouraging signs this new development is snatching market share in the competitive Gauteng market.
But Sun does deserve a lot of credit for making a very smart investment a few years ago in the Grandslots limited payout machine (LPM) business, which has subsequently been renamed SunSlots.
Initially, SunSlots was not viewed as a potential trump card. But the record will show that SunSlots outperformed all of Sun’s casinos properties in the year to end-December, growing the top line 10% to R1.16bn and ebitda (earnings before interest, taxation, depreciation and amortisation) by a sprightly 15% to R287m.
This makes the SunSlots business the fourth-biggest contributor to Sun’s profits, behind the flagship GrandWest casino in Cape Town, Time Square in Pretoria and the Sibaya development in Durban.
In the interim period SunSlots generated a bigger ebitda than Carnival City in Gauteng and more than the collective profits from Boardwalk (Port Elizabeth), Windmill (Bloemfontein), Flamingo (Kimberley) and Golden Valley casinos.
While LPMs are probably rightly viewed as mini-casinos without the huge capital outlay and maintenance costs, some punters do fret about the margin.
But SunSlots managed, in these brittle economic times, to hold its ebitda margin close to 25%: a reassuring figure that is actually better than some small casinos.
While there seems to be a long runway for organic growth, the issue for Sun might be whether it’s possible to capture more of this viable little niche via corporate action.
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