Tsogo Sun Gaming’s semi-annual results, which are listed on JSE through the end of September, released on Thursday, show that the group has left its 2020/2021 year behind at a loss as the gaming giant reported an increase in profits and a reduction in debt levels. .
The recovery in the first half was well received by the markets, as the group’s share price rose more than 6% on Thursday. However, the gains were erased on Friday morning when the market assimilated the news of a new variant of Covid-19 in the country.
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Around noon, its share price had dropped 10%, trading at around R9.50 per share.
The group reported a 159% increase in overall earnings to R323 million for the half, compared to a loss of R543 million for its comparative first half.
While this is an improvement over last year’s levels, its latest earnings are 52% below the comparable 2019/2020 period.
Tsogo Sun Gaming also saw revenue increase in the current period by 144% compared to 2020 levels to R3.8 billion. This also highlights its recovery, but the increase is still below 2019 levels.
However, the owner of popular casinos and entertainment complexes, such as Suncoast in Durban and Joburg’s Gold Reef City and Montecasino, was still affected by Covid-19 shutdown restrictions during the semester.
The third wave of the South African pandemic between late June and July affected operating hours, alcohol sales and the number of customers (due to capacity restrictions or social distancing) at its casinos.
However, the business is now much healthier than last year, and the group managed to improve its Ebitda margin (earnings before interest, taxes, depreciation and amortization), which was recorded at 12% in 2020, rebounding to levels of 2019 of 33.% in the current period.
Tsogo Sun Gaming says it wants to continue limiting the financial impact of the pandemic on the business by reducing its cost base and managing operational efficiency, and the group expects its business to normalize by 2023.
“As the group gradually returns to a normal state [hopefully in the 2023 financial year] after continuous restrictions affecting the business for an extended period, certain expenses, some of which are beyond our control [such as utility costs], will continue to increase, offsetting some of the savings initiatives achieved ”, he highlights.
“Visibility of where the operating cost base will end when we return to a normalized business environment remains difficult to determine precisely at this time,” the group adds.
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Meanwhile, Tsogo Sun Gaming says it plans to ditch non-essential assets, mainly surplus land, valued at R58 million to free up some capital.
“With ongoing cash flow constraints, no major development projects are planned for the second half of the 2022 financial year.”
“Investment opportunities within the industry are continually evaluated,” the group notes.
Impact of the new variant of Covid-19
According to Wayne McCurrie, portfolio manager at FNB Wealth and Investments, Tsogo Sun Gaming has shown dramatic change despite the difficult trading environment it has found itself in over the past 20 months.
However, he warns that the discovery of the new Covid-19 variant, called B.1.1.529, may “only spell bad news” for the entertainment group, as it may slow down its recovery momentum, especially considering that the Kingdom United plans to put South Africa on its red list (again) from this Sunday.
“Although foreign tourists are not the main part of your business, they are a big part of your business,” McCurrie tells Moneyweb.
“I’m pretty sure that even if other countries don’t place physical restrictions on tourists coming here, everyone will see that we are on the red list and everyone will take a look at the new variant and stop quite a few people from coming,” McCurrie says.
Read: UK Stops Flights From South Africa Over Covid Variant Concerns
Despite this, he is hopeful that although the fourth wave of infections is apparently underway in South Africa, the new variant will not have as devastating an impact as previous waves. This is because the country will face the fourth wave with a large proportion of the population already exposed to the virus or vaccinated.
McCurrie adds that Tsogo Sun Gaming’s business will not be as affected by future waves of infection for the above reason, as well as the fact that the most severe blocking restrictions will likely not be on government cards due to the devastating impact. it had in the economy.
Meanwhile, Tsogo Sun Gaming notes in its latest results that it is on track to reduce its debt levels in the medium and long term, which will help it reduce risk and financing costs. The group managed to reduce its net debt with interest and guarantees by R1.5 billion, from R11.8 billion in the previous comparable period.