Despite consumers being under heavy strain according to the medium-term budget policy statement this week by Finance Minister, Nhlanhla Nene, the two Africa-based gaming companies Tsogo Sun and Sun International have fared particularly well.
Sun International listed pre-tax profits of R1.16 billion while Tsogo Sun listed R2.7 billion, resulting in high expectations for the companies over the coming year.
Analysts Have High Expectations
Industry analysts have high expectations for both companies, suggesting they would make good investments. The companies' share prices are expected to go up over the next year, with Tsogo Sun rising more than Sun International.
According to Bloomberg, Tsogo Sun's share price is expected to reach R32.38, an increase of 22% on its current price of R26.55. Some analysts are suggesting that its share price could rise by as much as 25%. Sun International's share price is expected to hit R138.75, an increase of 12.8% on its current R123. This makes Tsogo Sun the better option, trading on a price-to-earnings ratio of 14, while Sun International's ratio is 21.
Sun International Shows Promise
While there may be many recommending investment in Tsogo Sun, Sun International also shows much promise. Jan van Niekerk, CEO of asset manager RECM recommended investment in Sun International stating that its market rating "doesn't reflect the good progress [that] management is making in cutting costs and making the business more efficient."
He added that Sun International is "trading well below what we calculate its intrinsic value to be, based on normal profits, given the good assets of the business."
Sun International has currently undergone some major changes after underperforming for years. While its margin and earnings are on the rise, they have not yet achieved the peak value they reached in 2007/9. However, they are certainly on the rise and investors are taking note of the trend.
Sun International has the opportunity to grow in Latin America. With major casino operators focusing on the Asian markets, Sun International is able to grow in this market without overspending to acquire new casinos.
At the same time there is some concern over the impact that the battle between Tsogo Sun's 47% owner, Hosken Consolidated Investments (HCI) CEO, Marcel Golding with its parent company e.tv will have on the company. Golding stepped down from his role of CEO after losing a court bid to overturn what he claimed was unfair dismissal. He was originally suspended on allegations of "gross misconduct."
