A balance between hospitality, online gaming, and casinos
Tinashe Hofisi
#themes: online betting, casinos
Sun International’s (SUI) FY24 results were in line with expectations, delivering adj. HEPS of 531c (+14% y/y, SBGSE: 533c, +15% y/y). SunBet was the standout performer, up 61% y/y, surpassing R1bn revenue, driven by an increase in active players, reflecting strong customer experience and retention in a highly commoditized industry. Resorts and Hotels benefited from domestic tourism, conferencing recovery, and foreign tourism. Urban Casinos were flat y/y, supported by large casinos and non-gambling activities, though smaller casinos struggled. EBITDA margin was down 60bps y/y to 28%, as pressure on urban casino margins (-150bps) offset improvements in SunBet (+70bps), Resorts and Hotels (+90bps), and Sun Slots (+10bps). Adj. HEPS was supported by debt reduction, a favourable tax rate, and a share buyback (c. 2% of outstanding shares). Post-FY24 trends are positive, Urban casinos and Sun Slots are seeing low single-digit growth, while Resorts and Hotels and SunBet maintain strong momentum. ND/EBTIDA is well managed at1.5x (FY24A: 1.7x)
Urban Casinos margin expectation trimmed. Following the FY24 results, we rebase margins due to subdued topline performance. However, with real GDP expected to exceed c. 2% by CY26E/27E, improving the marginal propensity to gamble which we think could drive topline growth at least in line with CPI, facilitating a gradual improvement of EBITDA margins. Moreover, the planned capital-light model for smaller casinos should help preserve margins in the short term.
SunSlots performance was resilient with EBITDA margin gains despite weak topline. Management’s redeployment of machines from underperforming sites to stronger locations could further aid FY25E margins.
Robust hospitality trends, G20 events, and forward booking strength could support Resorts & Hotels’ FY25E performance. However, strained US-SA relations may dampen US tourist arrivals (~17% of overseas tourists). We expect room rates to normalise to c. 5% - 8% in FY25E, with occupancy improving. The 90-day visa waiver for Chinese and Indian travellers could offset some weakness in the US cohort.
Peermont Tribunal hearing set for May 2025 but may face a one-month delay due to external objections, including from Tsogo Sun. If blocked, capital allocation could shift toward a special dividend (more likely relative to a buyback due to liquidity/free float constraints). Additionally, SUI may pursue acquisitions of smaller online betting players to consolidate the fragmented market and expand its share (currently c. 4% - 5%).
We now expect FY25E and FY26E Adj. dHEPS of 573c (+8.7% y/y, prev. 577c) and 638c (+11% y/y, prev. 644c), reflecting rebased urban casino margins and strong SunBet performance, which is tracking ahead of FY28E targets (R3bn GGR, R900m EBITDA). FY26E HEPS includes a 17cps–20cps (2%-3%) drag from Table Bay Hotel.
We update our fair value range to R52–R60 (prev. R53–R62), implying a total return of 39% to 60%, including a 12% DY. Our FY25E rolled Adj. dHEPS of 593c implies a 12m Fwd.PE of 6.9x. Key risks: (1) smoking ban, (2) slow economic recovery, (3) rising online betting competition, and (4) Tsogo Sun's Western Cape relocation.
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