Fixed odds profits underpin Phumelela performance

(Shutterstock)
(Shutterstock)

Johannesburg - Meaningful investment in retail fixed odds and tote betting shops is realising improving returns for Phumelela Gaming and Leisure [JSE:PHM], CEO Rian du Plessis said of the results for the six months ended January 31 and released on Friday.

Fixed odds income rose by 40% and fixed odds operating profit by 114%.

Du Plessis noted the results reflect the continued success of the group’s “longstanding proactive strategy to innovate and diversify income streams”.

“Meaningful investment in retail fixed odds and tote betting shops is realising improving returns," he said.

Operational performance

Net tote betting income on soccer rose 24% to R116m, net fixed odds betting income on sports other than horseracing rose 206% to R17m and fixed odds net betting income on numbers rose 37% to R31m. Net betting income from fixed odds overall grew by 39% to R75m.

Betting World ended the period with 60 retail outlets, up from 55, with 22 licence applications pending. The number of retail outlets is up 50% in less than two years.

Net betting income from local tote operations rose 9% to R348m, with growth driven predominantly by sports other than horseracing. Net betting income from local and imported horseracing grew just 2% to R232m.

Total net betting income grew by 13% to R423m.

Tellytrack subscriptions were impacted by a continuing dispute with bookmakers but still rose 12% to R11m.

Commission from international totes (other than the Isle of Man Tote) betting on South African racing rose 5% and fees for display rights to South African racing by 14%.

The group’s share of profits from limited pay-out machines grew 20% to R11m.

International factors

International operational profit rose 24% to R38m, though a R5m loss was incurred on writing down the group’s investment in Automatic Systems Limited (ASL) to market value.

Premier Gateway International Limited (PGI) faced competition from new entrants to the Isle of Man market, leading to margin pressure.  Share of profit from equity accounted investees fell 39% to R19m.

The write-down and the lower PGI contribution resulted in overall pre-tax profit from international operations falling 15% to R53m.

Group profit from operations before finance costs, share of profit from equity accounted investees and the ASL loss rose 49% to R46m. Excluding legal costs incurred in relation to ongoing Tellytrack/bookmaker litigation, group profit rose 58%.

International operations contributed 90% of Group profit before income tax of R59m compared with 101% in the first half of 2014.

Financial position     

With total assets of R800m, Phumelela’s financial position remains sound.

Cash generated before movement in working capital was R70m against a comparative R56m.

The group moved from a net cash position of R50m in the comparative period to net debt of R7m. Net asset value per share increased to 595.91 cents.

Investment       

Subject to conditions precedent, the group has concluded an agreement to acquire a strategic stake in Uptonvale Services, owner of the bookmaker, Interbet.

Subsequent event            

Betting World Nigeria – 26% owned by Betting World – incurred losses during the period and ceased trading in March. The group’s exposure to BWN amounts to approximately R11m.

Earnings and dividend

Attributable profit and earnings per share fell 4% to R49.7m and 65.96 cents respectively and headline earnings and headline earnings per share fell 3% to R49.5m and 65.69 cents respectively.

Adjusted headline earnings, excluding the ASL adjustment, rose 6% to R54m.

The board declared an interim gross cash dividend from income reserves of 28 cents per share (23.80 cents per share net of dividend withholding tax).

Prospects                 

Du Plessis noted that PGI had in place a pipeline of new betting opportunities with potential for additional growth.

“Commingling into new large offshore pools, offers excellent growth prospects. Phumelela will continue to be a leading platform to punters for South African and international betting. Initiatives to grow complementary betting opportunities to horseracing are bearing fruit and provide a solid and profitable underpin to local activities," said Du Plessis.

“The strategic shareholding in Interbet, subject to regulatory approvals, is an exciting development. Interbet is expected to be earnings accretive and dovetails well with our diversification strategy.”


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