GPI – R3bn cash pile offers free Burger King ride and now 10% of Spur

Capetonian Hassen Adams is establishing a reputation as one of South Africa’s great entrepreneurs. His Grand Parade Investments, which boasts 20 000 shareholders from mostly humble circumstances, is one of the JSE’s star performers, rising 78% in the past year. Part of that was on the back of the spectacularly successful launch of its new crown jewel, the local franchise of US brand Burger King. In our thoughtful discussion on CNBC Africa’s Power Lunch today, Adams explained why he is steering his cash flush company deeper into the food sector, including the acquisition of a 10% stake in Spur Holdings at a 13% discount to the current market price. With a market cap that’s only reflecting the physical cash owned by the company, it doesn’t take a rocket scientist to work out that despite the past year’s surge, GPI remains among the most attractive shares listed on the JSE. – AH     

ALEC HOGG:  I have a soft spot for the racing industry, having bred horses for a couple of years, but I’m nowhere compared with Hassen Adams whose achievements include owning a winner of the J&B Met.  His horses are competing for the greatest prizes, both here and internationally, but that’s not what this is about.  Grand Parade Investments, the company that he’s been driving for some years now, today acquired ten percent of Spur Corporation for a consideration of nearly R300m.  Hassen is in our Cape Town studios.  It looks like a really good deal, Hassen.  You bought at a 13 percent discount to the current market price and the current market price has done nothing in the past year.  In fact, you’re buying in at 2012 levels.  I guess the question has to be why Spur?.

HASSEN ADAMS:  Firstly, let me say it’s nice chatting to you again, Alec, and good day to your listeners or your viewers.  I’d like to start off with a Kissinger quote, which goes like this ‘what questions do you have for my answers today’, so I’m ready for all the questions.  Let me just say that this is a very sweet deal for us.  If you just look at the share price and what we’ve paid, we’re already R45m up, so you don’t have to be a rocket scientist to understand how smart we operate in this world of corporate business.

ALEC HOGG:  Yes, but you have been smart in the way that you’ve been realigning the portfolio.  You were very strong in gambling.  Then it was transaction with Sun International.  Now food, starting with Burger King, which everybody is celebrating as a fantastic achievement for you, and Spur…  Are there more synergies coming here?

HASSEN ADAMS:  Yes, the reason why we took an interest in Spur is firstly, they needed an empowerment partner and as much as we want to believe that we graduated out of the empowerment role where you jump on board, just sit there, and do nothing, we had to take a different approach.  We add value to businesses, as we did with Sun and the gaming business, and we believe we’re going to add value to the Spur.  There’s a lot of synergy in this deal from a logistics point of view and a supply point of view.  We’ve had long discussions with them about how we can move together and add value to each other, and that is what this deal is all about: Spur is now an international company.  They’re all over the world.  In Australia, they’re starting to do well.  In the U.K., they’re starting to do well. 

They’re in Africa and that’s where we want to play as well, so we’re going to shortcut our learning curve by dealing with the best.  We’ve always invested in Blue Chip stock and Spur is probably the best table-service restaurant group in this country.  For any group to go into Australia (you know how difficult it is), let alone the U.K….and they’re becoming successful there.  It’s a great partner to have and we want to add value as much as we want to embrace the value that they’re going to add to us.

ALEC HOGG:  Well, there’s only one Allen Ambor (Spur founder) – your fellow Capetonian.  Are the two of you pals?

HASSEN ADAMS:  Yes, we hit it off the first time we met.  I think he’s a man of sound principles and you know me.  Apart from the unknown that I trade in with the horses, you and I understand each other very well.  I won’t go and do anything irresponsible.  I have 20 000 shareholders that I’m responsible to and I have to find cash generative businesses to make quite sure that they have annuity income, and that’s what GPI is all about.  GPI only invests in businesses where we know we’ve acted responsibly.

ALEC HOGG:  Hassen, those 20,000 shareholders are delighted in the performance of GPI in the past year – up 78 percent – you really have brought home the bacon.  What about from here onwards?  Can you keep doing deals like this – this terrific transaction that you’ve secured today?  As you say, you’re already R45m in the money.

HASSEN ADAMS:  I have a CEO and he faces the wrath of Hassen Adams every morning, because when I get up at 4:00am, I translate my dreams into reality and that’s what he listens to every morning from me.  We’re already busy with the next two or three transactions, which is very exciting.  You can only do that if you have the war chest.  We have the war chest now.  We don’t have to worry about recession etcetera.  I always said, out of all these problems, opportunity will raise its head.  I say, during times of adversity we make money, because that’s when the opportunities come to you.

ALEC HOGG:  The war chest.  How big…did you cash in many of your chips on GrandWest?

HASSEN ADAMS:  Yes, we sold our GrandWest assets because we felt that it matured.  The two big boys moved in and I didn’t want to be the ham in the sandwich, so we managed to broker a very sweet deal, great partners in Tsogo Sun and Sun International, brought them together, and I think they’ll make a good partnership with GrandWest.  We got about R1.8bn cash out of it.  The slots business and Sibaya etcetera – if you add it all together, within the space 12 months, it’s about nearly R3bn cash.  Now you tell me: an empowerment company that started with R28m of investment sits today with R3bn cash and a market cap of R3bn, and we’re growing.  One has to be proactive.  You have to think smartly.  We’ve migrated away from the bricks and mortar gambling, to smart technology gaming systems.  We have an online betting license. 

We’re going to apply for the online license.  We’ve applied for the lottery.  We still have our slots business and we want to increase that to 10,000 slots within the next year.  Our gaming side is a very active side and we love the gaming side.  We’re still going to keep on with the gaming side, but at the same time when you’re dealing with multiples of in excess of 15, which is in the food business, you have to look at that too.  It’s the same type of market.  It’s a retail market.

ALEC HOGG:  Hassen, we’re following you, one of the great entrepreneurs in South Africa.  Hassen Adams started with R28m – R3bn in cash now and he’s going to deploy that very efficiently, you can be sure.  He’s the Executive Chairman of Grand Parade Investments.  I’m not the only one who thinks that he’s a star.  The share price is up 78 percent in the past year.