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TSOGO SUN RALLIES ON INCREASED TOURISM

Johannesburg – Tsogo Sun’s shares leapt 5.75 percent to R26.50 yesterday after the hotels and gambling operator said its annual profit rose 12 percent on increased tourism to South Africa.

Headline earnings per share rose 12 percent to 196.5c in the year to March, from 175c a year earlier. The group declared a final dividend per share of 67c.

Chief executive Marcel von Aulock said the group saw a number of tourists, mostly from the US, spend their holidays in South Africa due to the rand depreciating alarmingly against the dollar last year, which helped the group.

Von Aulock said during the first half of last year there were fewer Chinese and Indian tourists. “The visa regulations that were introduced by the Home Affairs Department cost us visitors from China and India.

“These were our strongest markets and it was pleasing to see the government loosening up on the regulations. It is showing already in the first three months of 2016 with tourism figures improving,” Von Aulock said.

Earnings before interest, income tax, depreciation, amortisation, property rentals, long-term incentives and exceptional items increased by 8 percent to R4.5 billion. Revenue increased 8 percent to R12.5bn, with 72 percent of its revenue derived from gaming and 28 percent from hotels.

“With consumers under financial strain and continued negative sentiment due to macroeconomic conditions, trading during this financial year has been challenging,” Von Aulock said.

The gaming division was a strong performer, up by 7 percent to R8.9bn.

Nolwandle Mthombeni, an analyst at Mergence Investment Managers, said the results displayed the resilience of the company, as well as the strength of its hotel portfolio, which had historically been overlooked by the market due to its smaller contribution to earnings.

“The casino industry is a fixed-cost business with high operational gearing, so when volumes slow down there can be significant margin compression. This has been the case for Tsogo as the consumer discretionary spends has become subdued due to overall macroeconomic negative sentiment.

“In 2015 the gaming stocks de-rated significantly on the expectations of slowing earnings growth due to lower gambling spend nationwide. Last year the group had a minus 13 percent total return as the market started shying away from the gambling sector.

“However, Tsogo was able to fare better than its peer due to, among other things, its hotel portfolio,” she said.

Mthombeni said while casino growth slowed, the hotel segment showed good growth on the back of strong tourism.

Source: IOL – Sandile Mchunu