Gaming shares have not been a one-way bet. The difference between the price performance of Sun International and Tsogo Sun, the JSE’s two biggest gaming groups, is stark.
But running far at the back of the field is Goldrush Holdings, the gaming company born out of the old RECM & Calibre investment company.
This is all a bit of a turn-up for the books. Before the disruptions and restrictions caused by Covid, Goldrush — which had built a niche in the electronic bingo (EB) segment and had a meaningful presence in the limited payout machine (LPM) market — was a nimble front-runner in the local gaming sector.
For several years the rapidly rolled out EBs and LPMs had outperformed the urban casino market. What’s more, EBs (in particular) and LPMs were considered “mini-casinos” — with strong and dependable cash flows at decent margins — but without the pesky problem of having to maintain and improve sprawling physical casino and entertainment precincts.
Recovering from Covid (and overcoming load-shedding disruptions) was one thing for EB and LPM operators. The bigger threat was the aggressive rollout of online gaming by sports betting powerhouses such as Hollywoodbets and Betway.
The plethora of online games offered by the large sports betting sites has taken by far the biggest share of punters’ spending in recent years.
The effect on Goldrush is plain to see. In the year to end-March the group’s bingo and LPM divisions saw a sliver of growth in their respective revenue lines of R1.05bn and R433m. On the other hand, the markedly smaller sports betting division — comprising Betnova (retail sports betting) and Gbets (retail sports betting and online betting) — increased revenue more than 40% to R262m.
An update for the first four months of trading, given at the AGM at the end of July, won’t narrow the odds on the bingo and LPM divisions regaining their winning form. The group indicated that the bingo division traded slightly lower than at the same time last year with the number of active customers down slightly (though average spend was constant). The LPM division operated fewer machines due to the closure of underperforming sites. At least an increase in the average gaming revenues per LPM meant that revenue was in line with the previous year.
Goldrush confirmed the online division continued its star showing, “continuing the growth trajectory it has experienced over the past year”. Overall, the aggregate revenue for Goldrush Group for the four-month period was 5% ahead of the same period in 2023.
It was clear from engagements at the AGM that shareholders are concerned over the future of the core bingo and LPM offering. The convenience of online gaming does question the attractiveness of such alternative gaming sites — though Goldrush executives are adamant that the faster-growing online segment can leverage off the retail gaming base.
The number of online customers had grown from 20,000 to 30,000 active users since the start of the year — which, while not as impressive as the numbers being racked up by Sun International’s larger SunBet, would seem an encouraging trend.
The problem, as succinctly observed by one Goldrush shareholder at the AGM, is that the online gaming segment is a “marketing driven game”. The marketing spend by Betway and Hollywoodbets is enormous — the latter even making its presence felt on the English Premier League.
Goldrush, understandably, does not intend to slug it out with the sector heavyweights. But one has to wonder how much market share it will win (or retain) on limited marketing spend and efforts to leverage off its retail base.
The upcoming interim results should allow punters to gauge just how sustainable the cash flows are at the probably ex-growth bingo and LPM operations as well as judge the pace of growth on the online side.
It will also be the first time shareholders will see Goldrush Holdings present consolidated accounts, and work out a possible earnings multiple on operating assets that were last valued at seven times ebitda.
Gut feel is that the share price probably accurately reflects the fretting about the growth prospects for the bingo and LPM divisions and the difficulty of holding market share, as a small player, as competition intensifies in the online gaming segment.
It might be best to keep your money off the table for now. If there is an outside chance of a quick win, it might be through corporate action if larger gaming groups — most likely Tsogo Sun (which is well behind Sun International in online efforts) — see Goldrush’s Gbets business as a quick way to gain extra market share.
Marc Hasenfuss
*The writer holds shares in Goldrush