Tsogo Sun cautious about recovery of hotel sector in year ahead

Moneyweb

Despite government’s U-turn on unabridged birth certificates for foreign minors travelling to SA, the relaxation of visa rules and Cape Town’s drought ending, the boss of JSE-listed hospitality giant Tsogo Sun Hotels remains cautious about a robust recovery in the hotel accommodation sector next year.

Marcel von Aulock, CEO of Tsogo Sun’s recently unbundled hotels division and chairperson of Hospitality Property Fund (HPF), said while there were positive signs, the biggest factor that would drive a sustainable recovery in the sector was stronger economic growth in the country.

He was speaking following a presentation to investors on Tsogo Sun Hotels Limited and HPF’s latest results for the halfyear to September 30, which came out last week. “The SA hotels industry has been pretty stable; however, it is not growing at the rate we would like it to grow,” said Von Aulock.

“We are seeing pressure particularly at the bottom end of the market, but there are some green shoots. Finally addressing the unabridged birth certificate and visa issues was a big move by government. It was ridiculous what they did in the first place, but that they’ve finally addressed it properly is encouraging,” he added.

Von Aulock noted that Tsogo was seeing “relatively good” forward bookings for the holiday season and he believed corporate travel would be good for the first quarter of next year.

“We are cautiously optimistic for the short-term into next year as it still is a tough operating environment. However, there is enormous longer-term upside potential for tourism and business tourism growth in the country,” he said.

Tsogo Sun Hotels reported headline earnings per share of 5.2 cents for the half-year, which marks the group’s first set of financial results following its unbundling from the bigger Tsogo Sun Gaming group in June.

The hotel group recorded R2.1 billion in income for the six months to September 2019, while operating profit came to R320 million. It noted that profit attributable to equity holders of the company came in at R54 million. In line with its pre-listing statement in June, Tsogo Sun Hotels did not declare interim cash dividends for the period. The group planned to apply cash resources generated during its initial 15 months post the listing towards settling its offshore division’s dollar-denominated interest-bearing debt.

Von Aulock said this debt was $85 million (R1.2 billion) and was related to the group’s offshore hotel acquisitions in the UK, Nigeria and Mozambique. “When Tsogo Sun Hotels was part of the bigger Tsogo Sun Gaming group, this debt was manageable. However, with Tsogo Sun Hotels being a separately listed group now, we are not comfortable with the level of debt.”