Earnings at Sun International soar 88% despite resort, casino headwinds
ANALYSTS say the hotel, resort and casino sectors are raking in profits for hoteliers and related operators, after Sun International raised earnings for the full year to December by 88%, though there are concerns that the growth of the industry is mainly concentrated in the Western Cape.
Sun International raised revenues for the 2023 full-year period 70% to R12.1 billion with SunBet income and profitability robust, while Sun City had record adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) of R455 million. The group’s South Africa operations generated R3.6bn.
This resulted in headline earnings per share for Sun International for the full-year period under review surging by 88.1% to 425 cents, helping it declare a final dividend of 203 cents per share.
The group’s adjusted Ebitda margin was impacted by increased diesel costs of R60m, in addition to the relatively higher-income growth from the resorts and hotels division which operates at a structurally lower margin than urban casinos.
Sun International is now implementing a renewable energy strategy to protect margins and ensure energy security.
Wayne McCurrie, a wealth and investments analyst at FNB, described the resort, hotel and casino sector as “flying, but unfortunately only in the Western Cape”. This, while other analysts say logistics and infrastructure bottlenecks are holding back the sector from its full potential.
Sun International’s revenue from its South Africa gaming operations grew a third successive year to R55.8bn. Gaming income makes up 76.8% of the group’s total income and showed continued sustained growth of 3% for the period under review.
Income from the company’s casinos, however, sagged by 10%, with Sun Slots’ operations impacted by load shedding. But SunBet income remarkably surged by a massive 116.2%.
Domestic leisure, conferencing and sports and events revenues continued to grow during the period under review, while international leisure business recovered strongly.
Under the domestic leisure category, rooms, food and beverage revenue grew by 28.9% year on year, helping to lift the company’s income from the segment 17.4% to R3bn.
“Sun International delivered a solid financial performance in 2023, driven by online gambling growth and a strong showing in resorts and hotels. The company is in a good financial position and expects continued success in 2024, with the addition of Peermont Holdings bolstering its market position,” said market watcher, Marco Olevano.
According to McCurrie, shares in Sun International traded 4% stronger in early trade on the JSE yesterday before trading at around R39.61, which was 1.77% stronger compared to its close on Friday.
Sun International declared a final dividend of 203 cents per share, adding on to the 148 cents interim shareholder payout declared in September.
Although economic challenges and load shedding are placing pressure on Sun International’s urban casinos, trading levels at the start of 2024 improved marginally. Its Limited Payout Machines operations were also demonstrating continued resilience.
The strong momentum in SunBet is expected to continue, with the company seeing another substantial increase this year, as the business expands rapidly.
“Our resort and hotel properties have continued to perform exceptionally well, and we anticipate another good year from them in 2024. Overall, we are seeing positive growth in both income and adjusted Ebitda,” it said.
Sun International is expecting to close the acquisition of Peermont later this year, though it does not expect the newest operation to have a significant impact on its financial performance for the current year.
“In the meantime, we will be focused on comprehensive integration planning and positioning the combined group to deliver earnings and cash flow accretion with comfortable levels of gearing immediately post-completion.”