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Grand Parade Investments Ltd

26 August 2014 

Grand Parade Investments over the last two years has shifted from a predominantly gaming oriented business to a greater interest in the fast food sector, with 19 outlets of Burger King countrywide with the intent to grow this to over 100 in the next 5 years. Vertical integration through the acquisition of Mac Brothers, the local manufacturer of Burger King equipment should allow the company to role out its aggressive store plan and significantly lower costs and reduce timescales. 

In May it entered into an agreement to dispose of its entire 25.1% interest in SunWest and Worcester Casino through a share buyback of R1.55 billion in cash, effectively exiting the Western Cape gaming market, with Tsogo Sun taking on 40% in SunWest and Worcester. Further to that, it disposed of its investment in Sibaya Casino through the disposal of 24.9% in Dolcoast for R130 million. A three stage transaction of around R750 million spanning over 2014, 2015 and 2016 was also entered into with Sun International to sell up to 70% of their limited payout machines business, GPI Slots. The company retained its betting machine manufactruing arm and hopes to become the leading supplier of machines in the casino industry through its subsidiary Grand Merkur. In July the company further diversified into the food services sector entering into a BEE deal with Spur, acquiring 10% of its shares at R27.17, a 13.7% discount. Spur received R294 million for the deal. The disposal of assets is in line with the companies plan to generate cash for reinvestment into existing endeavours and new opportunities, registering Grand Foods with intention to expand into pizza, pasta and chicken.

Internationally, Burger King Worldwide Inc. has entered into discussions with Canada’s biggest coffee and doughnut seller Tim Hortons Inc. The acquisition will see the combined business generating an estimated $22 billion in sales across 18,000 restaurants in over 100 countries, making it the worlds third largest fast food chain. The US corporate tax rate is at 40%, across the border its Canadian corporate neighbours typically only pay 26.5%. Burger King is looking to shift its headquarters from the USA to Canada taking advantage of a tax inversion, potentially preventing its current tax rate of 27.5% from surging upwards to 35%. The acquisition could boost breakfast sales for Burger King with access to a coffee brand with a strong following, also allowing them into the supermarket business through Hortons range of packaged coffees. It’s alleged that Warren Buffets Berkshire Hathaway Inc. is looking to invest $3 billion  for a preffered stake in the deal.

The share price has found support at 650c (black dashed line), trading up 2.48% for the day. The trend is up with the share price trading aboe its 50day moving average (blue line). The pending transaction may have a further material effect on the stock as Burger King in the US rallied 20% to $32.40. - Leigh Riley, Premium Client Manager

Grand Parade Investments, 26/08/2014

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