Sun International is still a good bet
November 5, 2008
By AUDREY D’ANGELO
Cape Town - Despite inflation and the economic downturn, Sun International, South Africa's biggest hotel and gaming company, achieved modest growth of 3 percent in overall revenue in the three months to September compared with the same period last year.
Revenue from hotel rooms was up by 13 percent and from food and beverage by 8 percent.
But revenue from gaming rose by only 1 percent, reflecting more cautious attitudes towards spending by some customers as disposable incomes fell.
The directors said that earnings before interest, tax, depreciation and amortisation slipped to R623 million compared with R631 million in the previous comparable period.
While this reflected the state of the current economic environment, they forecast that the current quarter would be challenging for the company's gaming interests, but hoped this would be offset by revenues from the hospitality interests.
Cadiz Holdings analyst Kurt Benn said: "This is a pretty solid result - not a bad performance in the current situation."
However, it was impossible to forecast how well gaming and hospitality companies would do in the coming year, he added.
Pointing out that the environment was extremely volatile worldwide, he said that although Sun International had been helped by its hospitality interests while the gaming industry was suffering, it was not a foregone conclusion that the coming holiday season would be good.
The tourism industry was hoping the weak rand would encourage holiday makers from overseas to come to South Africa, as had happened in the past.
"We rely heavily on the European market, and the economies of the developed countries are suffering more than ours," he said.
The Wild Coast Sun's casino licence expires next August. The group has submitted an application for its renewal, including a proposed R340 million upgrade and expansion plans.
The Boardwalk's licence expires in 2010. Submissions for its renewal are due by January 13.
The Monticello casino near Santiago, Chile, opened as planned. The directors said that although this was a "soft opening" the volume of visitors had been pleasing, with an encouraging number signing up for its loyalty programme.
The retail and entertainment components were due to open next March and the 155-room hotel in June. The project was "within the overall cost of $236 million" (R2.3 billion) forecast.
In Nigeria, the group is managing the Federal Palace Towers Hotel on Victoria Island and the refurbished 150-room Federal Palace Hotel in Lagos, which was officially opened in August.
The gaming licence is expected to be issued shortly. The group will then acquire a 49.5 percent interest for $38 million.
The total expected cost of the project remains at the originally estimated $167 million.
Sun International shares rose 1.82 percent to R86.55, compared with the leisure and hotel sector, which gained 0.75 percent.
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