BROKERS’ NOTES: Buy Sun International, sell Amplats

Buy: Sun International

Sun International has had a volatile history — ranging from a large share buyback in 2007 at R145 a share, to a Covid-era rights issue at R9.44 a share. Today, however, the group appears to be on a much firmer footing.

Operations have been streamlined, with the sale of its Latin American casino business in 2020 (earn-outs of R600m are still expected), and an exit from its African hotel interests outside South Africa, which was finalised last year. Sun’s current portfolio includes its resurgent domestic resorts and hotels, the rapidly growing Sunbet operation, and its core casino and slots business.

Value Capital Partners has played an active role in guiding Sun since 2018, and the recently announced C-suite changes should bring the group renewed energy and focus. Meanwhile, the ongoing Peermont acquisition attempt — its second — could provide the scale necessary for a potential dual listing, which may unlock further value.

With the bottom line converting fully to free cash flow, and the group trading at about seven times earnings, Sun International looks increasingly compelling at current levels.

Sell: Anglo American Platinum

Anglo American Platinum — soon to be renamed Valterra — has faced a difficult stretch of late. Anglo American appears to be aligned with its on-again, off-again suitor BHP in concluding that the platinum producer’s future is best pursued independently. However, while the broader platinum sector remains under pressure, Amplats faces several additional company-specific challenges in the near term.

A R16.5bn final dividend has been extracted from Amplats ahead of the unbundling, pushing the group’s net debt (adjusted for its large customer prepayment) to nearly R11bn. The company also faces separation costs approaching R2bn and ongoing dissynergies of about R500m per year. On top of that, Anglo shareholders may opt to sell the relatively small Amplats stake they receive, adding potential pressure to the share price. Anglo American’s decision to retain a 20% shareholding could also create an overhang.

Despite its owning some of the best assets in the sector, investors may want to steer clear of the group for now.