Tsogo Sun focuses on organic growth

WITH opportunities for new developments relatively limited, listed hotel and casino operator Tsogo Sun has continued its focus on the organic growth of its business. The hospitality industry is still recovering from an oversupply of rooms thanks to pre-World Cup developments, while the casino industry provides few opportunities for new operations given that 38 of the 40 available casino licences have been used.

However, Tsogo Sun CEO Marcel von Aulock is comfortable with the status quo, given that the major casino target markets are already serviced and better economic conditions will see demand in the hospitality industry improve.

In the past week, Tsogo Sun has announced spending amounting to more than R1bn to improve some assets. Last week, the group said it was undertaking a R220m refurbishment, consolidation and relaunch of the Southern Sun Elangeni and Southern Sun North Beach hotels in Durban into one complex.

Meanwhile, on Tuesday the group announced significant expansion plans for its three Gauteng casino operations, following a lengthy approval process with the Gauteng Gambling Board.

Excluding what will be spent on Montecasino, total earmarked spending is R900m, including a R150m consideration to the gambling board for charity and social development. The expansion and redevelopment of the group’s Silverstar casino, set to cost R480m, starts next week.

The redevelopment pipeline affirms Von Aulock’s belief that the group’s biggest opportunity is growth from its existing portfolio amid an economic recovery. T HE takeover of embattled South African steel retailer Alert Steel by American construction technology and pre- fabrication company Cannistraro, shows that when South African companies snooze they tend to lose out to foreign ones. Alert Steel’s share price has collapsed more than 70% in the past year as the company struggled with operational glitches and poor demand.

During this time a broad-based black economic empowerment deal went south and the company lost a potential white knight.

But no South African companies took the gap and made any meaningful play to rescue Alert Steel. Nedbank did underwrite the bad empowerment deal, but it quickly sold the shares it gained through the underwriting process. Cannistraro took the gamble that local companies either avoided or did not realise was there to take.

Steel companies are notoriously difficult to run — the smaller ones in particular have to work around giants like ArcelorMittal SA.

Things are fine when demand is buoyant, which can last for a while, but when it is bad it can be difficult to gauge when the market will turn. Sasfin stockbroker David Shapiro hit the nail on the head when he commented to the effect that the South African business world is so closeknit that it sometimes can’t see the wood for the trees.

Dave Marrs edits Company Comment (marrsd@bdfm.co.za)