Gaming and hotels group Tsogo Sun, which is controlled by empowerment conglomerate Hosken Consolidated Investments (HCI), hiked its interim dividend 10% to 34c per share despite adjusted headline earnings for the six months to end-September being static at 88c per share.
Tsogo CEO Marcel von Aulock said the earnings would have been 12% ahead of 2015 at 95.3c per share if the effect of the long-term incentive scheme (inflated by the upward shift in the company’s share price) was stripped out.
Turnover, at R6.3bn, was 8% better than in 2015, but it was driven mainly by the hotel segment, with the growth in gaming win limited to just 3%.
Earnings before interest, tax, depreciation and amortisation rose 7% to R2.2bn, with an overall operating margin of 35%.
Total revenue for the gaming segment was up 4% to R4.5bn, with the Gold Reef City (in Gauteng) and Golden Horse (in KwaZulu-Natal) casinos the star performers with a 16% and 19% increase in profits to R265m and R87m, respectively.
Von Aulock said Gold Reef City and Golden Horse benefited from extensive refurbishments.
"We hope our major refurbishment of the SunCoast casino complex in Durban benefits as much as the Gold Reef city and Golden Horse casino did."
The SunCoast casino "was built too small" for the numbers it attracts.
Tsogo’s high-end privé market continued to perform well, albeit with volatility from month to month.
Dirk van Vlaanderen, associate portfolio manager at Kagiso Asset Management, said Tsogo had produced resilient interim results in tough trading.
"Despite a very subdued top-line performance in gaming, where gaming win growth increased just 3%, the company managed to expand margins and grow profits through good cost control," he said.
Von Aulock said trading was expected to remain under pressure. "We need consumers to get wealthier and … feel wealthier."
The group remained highly cash-generative and he was confident of achieving attractive returns from the growth strategy once the macroeconomic environment had improved.
A longer-term opportunity Tsogo is watching is the pending decision around a second casino licence in the Cape Town metropole, where Sun International’s GrandWest casino has enjoyed exclusivity.
If it is awarded, an existing Western Cape licence will be allowed to be transferred from a smaller location to Cape Town.
Tsogo would be the favourite to score from such a decision as it controls the Mykonos, Caledon and Garden Routes casino licences and has a significant minority stake in Sun International’s Worcester casino.
Tsogo’s investment presentation confirms the group has launched court action to compel the Western Cape government to allow the relocation of one of the outlying casino licences to Cape Town.
According to the presentation, settlement negotiations were continuing and legal proceedings had been stayed until the intended legislation around a second casino licence for Cape Town was published.