Consistent best performing sector in the SA economy.

JOHANNESBURG – The gaming industry has been one of the best industries formed in the SA economy since 1994, says Marcel von Aulock, CEO of market leader Tsogo Sun.

In positive light, Tsogo Sun is the largest empowered company in SA. Rivals Sun International (JSE:SUI) SA and Peermont, also have strong empowerment credentials. Government made sure from day one only empowered companies would qualify for gaming licences.

Other favourable points: the industry has generated thousands of jobs and been an important customer of the building companies. The hotels it has built are, to generalise, pretty swanky First World units. Von Aulock says a good part of the growth has come from the expanding middle class.

The industry has also provided many excellent entertainment venues and eateries.

In negative vein, the billions that flow into the slot machines and over the tables actually represent a transfer of wealth from the losers to the winners, with the casino raking off a reliable couple of percentage points for itself. In other words, it is not really a wealth generator in the way that Tiger Brands (JSE:TBS) is, adding value to mealies, oats, sugar and other commodities.

Tsogo would not make it on to any social responsibility index, given that gaming is an addiction to many who spend money on it that they cannot afford. The same could be said, however, of British American Tobacco (JSE:BTI), one of the best performers on the JSE (JSE:JSE) or the LSE for that matter.

Government has reason to love the industry because it is the source of billions of rands of tax.

The most recent results show evidence of acceleration in the second half, proof that Tsogo is managing to maximise revenues in what were previously Gold Reef properties. Indeed the merger is shaking down well and there might well be more to come out of it. Because of the Gold Reef merger, the result needs more than a few minutes’ analysis. That said, the numbers mostly look positive and Von Aulok is positive.

If the industry is growing so strongly, should one not buy the shares? One disincentive to investment might be the 5% like-for-like headline earnings growth announced on Wednesday by Tsogo.

Von Aulok reminds one: “This is growth over and above the extraordinary effects last year of the Fifa World Cup.”

Montecasino and Gold Reef City were the stars of the group with gaming revenues up 8.4% and 11.3% respectively. Silverstar reported a 1.1% decline. Von Aulok says this unit requires a much greater footfall and that is why the upgrade is indicated.

Source: Moneyweb – David Carte