Tsogo Sun will bring the largest hotel business in SA to public investors
Investors’ calls for Tsogo to break into two specialised businesses have been heeded
Tsogo Sun is set to list the country’s largest diversified hospitality group on the JSE in June, giving investors exposure to an array of top-rated hotels such as Monte Casino.
Tsogo is being broken into two parts, namely Tsogo Sun Hotels and Tsogo Sun Gaming, which will be listed separately.
Tsogo Sun Hotels will include 110 properties across the continent and a 60% interest in JSE-listed Hospitality Property Fund (HPF).
The unbundling would be implemented through a distribution of all the ordinary shares in the hotels business to Tsogo Sun’s shareholders, using the ratio of one Tsogo Sun Hotels share for every Tsogo Sun share held.
Former CEO of Tsogo Sun and the new chair of Tsogo Sun Hotels, Marcel von Aulock, said investors were being given a choice; investing in a hotels business which could provide regular income returns or in a gaming business that had a mix of mature casino assets and newer gambling assets.
He said Tsogo Sun Hotels, which would list on June 12, could succeed because of its diverse nature.
“This company has a range of businesses within it and this diversification can protect it in down times. We have local hotels which we hold directly, eight African hotels, management businesses and also the 25% of UK hotel group RBL,” said Von Aulock.
He said the group could perform better than its subsidiary, HPF, had in recent years. Tsogo took over HPF in 2016 when the real estate investment trust was struggling in a post 2010 Soccer World Cup lull. Since then new management has been appointed at HPF and the company’s portfolio has been reshaped.
Tsogo Sun provided details about the group unbundling, after it released financial results for the year to March, which it said was a challenging period. Its net profit fell by a quarter during the year because of a decline in property values.
“Trading for the year was impacted by the continued pressure on the consumer due to the macroeconomic environment,” the group said.
Profit after tax fell 24.8% to R1.6bn as the hotels business slipped to a loss of R59m because of a R445m reduction in the fair value of its investment properties.
Tsogo Sun said total income rose 18% in the year to R11.6bn and operating profit grew 13% to R3.1bn.
Income was boosted by a 21% increase in net gaming wins, including the acquisitions of the Galaxy Bingo and VSlots businesses, 4% growth in hotel rooms revenue and a 9% growth in food and beverage revenue.
The group declared a final dividend of 56c a share, down 20%. But total dividends for the year were up 84% at 188c a share.
“Given the continued weak state of the South African economy trading is expected to remain under pressure,” Tsogo Sun said.
Growth would depend on the economy’s performance and on policy certainty.
“Nevertheless, the group remains highly cash generative and is confident in achieving attractive returns from the growth strategy once the macroeconomic environment improves,” it said.
Robert Tout, equity analyst at All Weather Capital, said a separate listing for the hotel assets “will likely be value enhancing”.
The arrangement would result in “a cleaner investment case for the core mature casino properties and faster-growing alternative gaming assets”.