Gold Reef Resorts - from nothing to R21bn market cap in 12 years
The Citizen
30 March 2010

David Carte

After its merger with Tsogo Sun, Gold Reef Resorts will be worth R21bn but shareholders have to wait for the circular later this week to learn who will run the company.

Steven Joffe, CEO of Gold Reef, has quite a track record - building the company from nothing to the current market cap of R5.5bn in 12 years. Still, he will probably have to defer to Tsogo's CEO Jabu Mabuza.

Tsogo, after all, is the bigger component, valued in the proposed merger at R17.1bn (886m Gold Reef shares at R19.25). HCI will have 41% and effective control of the merged company.Joffe told Moneyweb that the SA gaming market is close to saturation and it was vital to have size before going global.

He said the two companies were valued by earnings before interest, tax, depreciation and rentals. The parties used the top line because funding, tax and depreciation costs were variable between companies. At the R19.25 initial valuation, Gold Reef is value at 14.6 times the most recent heps. The price has subsequently weakened some 4.6% to R18.95. Grant Thornton has published a fair and reasonable statement.

"We looked at our forward projections and theirs as well. We looked at each other's assumptions about the future and the occupancies of the hotels and these are the relative valuations we arrived at."

Have there been any objections to the proposal from gaming boards, the Competition Commission, rival companies or other affected parties?

"Not so far but these are early days. We'll have to wait and see."

Joffe was satisfied with results for the year to December published on Monday. Gold Reef raised revenue by 1% to R2.2bn and headline earnings in line to R363m (R358m) or 131.9c (130.5c) a share. The dividend of 65c will be paid to shareholders before the merger is effected.

The combined group will boast 14 casinos, some of them the most lucrative in SA. It will have 90 hotels with 14 428 rooms in nine countries.

Joffe said this was a bad time to sell casino stocks. They have weathered deep recession and severe pressure on consumer pockets, as well as severe cost increases.

He foresees rising footfalls as the economy improves, also as the renovations and expansions to Gold Reef's seven properties kick in. The Soccer World Cup should provide a fillip to the earnings of all casino stocks in the next six months.

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