BROKERS’ NOTES: Buy Sun International, sell WeBuyCars

Buy: Sun International

Sun International is a South Africa-based hotel, casino, and entertainment company. Its gaming business includes casinos, SunBet, Sun Slots and casino promotions. The company, which owns Sun City, recently recorded a healthy rise in gaming and hospitality revenue. The group’s income increased by 5% to R6bn. Gaming income, which constitutes 77.4% of the group’s total revenue, increased by 3.4%. Casino income at its four largest urban casinos grew by 2.2%, while the more negligible regional casino growth remained challenging. SunBet continued its strong growth path as income grew by 71.8%, surpassing its own aggressive growth targets. Interestingly, 66.7% of R1.7bn cash generated by the South African operations converted to free cash. With debt levels looking better, Sun is now able to pay a dividend of 161c, which puts it on a yield of more than 8%. With an earnings multiple of about 11, this share offers an undemanding entry into a sector that is starting to reap the benefits of the reduction of load-shedding, easing inflation and a lower interest rate environment.

Sell: WeBuyCars

WeBuyCars (WBC) is engaged in vehicle buying services. Its offering extends beyond the buying and selling of vehicles to finance solutions and insurance products. In April 2024, WBC was spun out of Transaction Capital with a successful listing on the JSE raising just under R1bn. Since then the share price has been one of the best performers year to date, rallying over 50%. WesBank’s Business Intelligence reported this week that in the first half of 2024 applications for used cars surpassed new car applications by more than two to one. But to quote Warren Buffett: “Price is what you pay; value is what you get.” At an earnings multiple of more than 20, with a peer group trading in single digits and offering yields close to double digits, the stock is full. Yes, you might get a kicker from a cut in rates later this month, but it’s more than the price.