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MERGED TSOGO EXPECTS 25% PROFIT RISE

LISTED hotel and casino operator Tsogo Sun said on Tuesday it expected adjusted headline earnings per share to be 23%-25% higher for the financial year ended March compared with the previous year.

This reflected the continued recovery in trading conditions “and the impact of the group’s growth strategy”, Tsogo said.

The financial results for the year ended March are the combined group’s first fully comparable set of annual results following the merger with Gold Reef Resorts in 2011.

Avior Research hotels and gaming analyst De Wet Schutte said the strong performance was “in line with expectations” and was driven more by the group’s hotels division than its casinos.

“Casino revenues are growing, but they’re not shooting the lights out,” he said.

Tsogo Sun said last month it had committed R920m towards its hotel expansion in the rest of Africa. Also last month, it announced expansion plans for its three Gauteng casinos, with a committed spending of R900m.

The group is also investing R220m into the refurbishment, consolidation and relaunch of the Southern Sun Elangeni and Southern Sun North Beach hotels. It is spending R200m on expanding its Emnotweni casino in Nelspruit and is acquiring the remaining minority shareholding in Suncoast casino for R400m.

Mr Schutte said while the group had an Africa strategy in place, the region’s contribution to profit over the next few years would remain relatively small.

“At this point they still have opportunities in South Africa — they can spend capex (capital expenditure) and get a return on it.”

“What we like about Tsogo at this point is that they don’t have to look very far abroad to find value-generating opportunities.

“It’s a massively cash-generative business and they can still apply that cash well within South Africa,” Mr Schutte said.

Tsogo Sun CEO Marcel von Aulock said earlier this year he expected growth to come from a continued economic recovery and the organic growth of the business out of existing assets.

The group said it expected earnings before interest, income tax, depreciation, amortisation, property rentals (Ebitdar), long-term incentives and exceptional items to be 10%-12% higher than the prior comparable period.

Earnings per share were expected to be 4%-6% lower compared with the previous year, while headline earnings per share were expected to be 6%-8% higher than the previous year.

However, comparable earnings per share and headline earnings per share were affected by certain once-off transactions included in the previous financial year’s results, which totalled a net gain of R384m in that period. This net gain related primarily to a fair value adjustment to the existing equity investment in Hotel Formula 1 on the acquisition of the remaining 52.6% of Hotel Formula 1 in March last year, and the release of the contingent liability relating to the 2009 Millennium transaction, and other investment and loan impairments.

These once-off items were adjusted for in calculating Ebitdar and adjusted headline earnings for the previous year. Tsogo Sun is scheduled to release its financial results for the year ended March on or about May 23.

Source: Business Day – BDLive – Nick Hedley