Sun International looks much brighter

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The tourism and hospitality group has released results for the year ended December 2021, signing off on a year that was much better for the industry than 2020. That’s hardly a tough benchmark though, let’s face it.

Perhaps the most important thing about this performance is that the group managed to reduce debt in this period by R541 million, assisted greatly by sustainable cost savings of R650 million that were implemented in a time of great need. R180 million in annual savings was achieved at Sun City alone!

Income from continuing operations increased by 29% to R7.8 billion and headline earnings swung favourably from a loss of R409 million to a profit of R265 million. This means that the group has still lost money over the pandemic period overall. The encouraging news is that the adjusted EBITDA margin in South Africa has improved from 28% in 2019 to 34% in 2021.

The casino operations and alternate gaming businesses make up 80% of group revenue. Sun International claims to have defended or grown market share at most urban casinos, while enjoying a strong rebound in the slots business (which benefits from alcohol trading and the removal of curfews) and record income in the sports and online betting business known as SunBet.

New player acquisitions in SunBet were 88% higher than 2019 and turnover was 66% higher than that year. Due to the significant marketing spend required in SunBet, the division recorded a small adjusted EBITDA loss.

The resorts and hotels division can only dream of a return to pre-Covid levels. Income was up 39% in 2021 vs. 2020 but remains 39% below 2019 levels. This division is still loss-making, with an adjusted EBITDA loss of R56 million in 2021 vs. a loss of R158 million in 2020.

Management’s focus is to keep reducing debt to create capacity for dividends to return over the short to medium term and for “disciplined investment” in the right opportunities. The debt levels are well within lender covenants.

Performance in January and February 2022 has been strong. Gaming income was in line with 2019 and EBITDA was higher. Sun International can only do its best under the circumstances of Covid and other global disruptions.

At yesterday’s closing price of R23.59, Sun International is still 40% lower than where it traded at the beginning of 2020.

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