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HOPES FOR UPTICK IN SPENDING DRIVE TSOGO SUN

GAMING and hotel giant Tsogo Sun is still betting big on a consumer spending upturn, investing R1bn on revamping its properties and on new opportunities in the half-year to end-September. Tsogo reported on Thursday a 7% increase in turnover to R5.9bn with adjusted headline earnings coming in 9% higher at 88c per share.

The interim payout was hiked 7% to 31c per share.

Bradley Preston, an analyst with Mergence Investment Managers, said Tsogo’s numbers were solid in a tough trading environment.

Lentus Asset Management chief investment officer Nic Norman-Smith said the real potential upside in Tsogo was the company’s operational gearing. “If there is a turnaround in consumer spending it could significantly ramp up profits, which drop straight through to bottom line.”

Tsogo CEO Marcel von Aulock said the interim performance was underpinned by the company’s development and merger and acquisition activity. “This will continue to be a focus moving forward. Despite the tough current operating environment, we’ll continue to allocate capital in terms of our growth strategy. This is expected to reap benefits once the economy improves.”

Most of the R1bn investment was earmarked for the R640m refurbishment and expansion of the Gold Reef City casino and theme park as well as the R252m acquisition of 55% of the B-linked units in Hospitality Property Fund. There will also be considerable investment in the planned expansion of flagship casino property Suncoast in Durban that is due to start in mid-2016.

Mr Von Aulock said that following an assessment of the Durban retail market, the investment in the Suncoast expansion had increased to R3.5bn. The revamp will include a 49,500m² retail mall and additional restaurants.

Although considerably smaller than Tsogo’s Montecasino property in Johannesburg, Suncoast held the highest earnings before interest, tax, depreciation, amortisation and rental (ebitdar) margin of all the company’s casinos at more than 45%. Suncoast increased its ebitdar contribution 10% to R374m.

But Mr Von Aulock cautioned against reading too much into the half-year performance.

“The current volatility in the casino market — whether it is individual properties or regions — means that we can’t assume that because Suncoast had a good six months the next six months will be good as well.”

Overall, Tsogo’s net gaming win for the interim period was up 4% to R3.56bn. Mr Von Aulock argued that Tsogo’s casino operations would continue to feel margin pressure as long as the gaming win number was growing at below the inflation rate.

The star performer for Tsogo in the interim period was the Offshore Hotels division, which pumped up revenue 34% to R337m.

With a spread of properties across Africa, Tsogo benefitted from a recovery in travelling after the effect of the Ebola epidemic and the weakening of the rand against the dollar and the euro.

Looking ahead, Mr Von Aulock conceded the second half outlook was not bright for Tsogo.

“We expect trading conditions to remain under pressure due to the ongoing macro-economic conditions and weak consumer sentiment.”

But he stressed Tsogo remained highly cash-generative — with more than R2bn in cash generated from operations in the interim period.

Source – BDLive – Marc Hasenfuss