Our opinion on the current state of SSUSouthern Sun Hotels, previously known as Tsogo Sun Hotels, is a business focused on gaming, hotels, and entertainment. The company underwent a strategic split, separating its gaming and hotel divisions to unlock shareholder value and enable a more concentrated approach in each area.
The company has seen benefits from its investments in limited payout machines (LPMs) and electronic bingo terminals (EBTs), primarily located in restaurants and bars. These investments have shown profitability, though they faced challenges during the COVID-19 pandemic.
In the financial results for the year ending 31st March 2024, Southern Sun Hotels reported:
- Revenue increased by 19%.
- Adjusted headline earnings per share (HEPS) rose by 88%.
- Free cash flow of R970 million was allocated to share buybacks (R617 million), expansion capital expenditures (R180 million), and debt reduction, bringing net debt down to R1.0 billion with a leverage ratio of 0.7 times EBITDA.
In a trading update for the six months ending 30th September 2024:
- Occupancy rates improved to 57.1%, up from 55.9% in the previous period.
- The average room rate saw a slight increase of 1.7%.
- The temporary closure of Southern Sun The Cullinan in June 2024 and Sandton Towers from 26th April 2024 impacted the group’s available room inventory, affecting occupancy, rates, and revenue.
The company projects that HEPS for the period will increase by between 33% and 39% compared to the previous year.
From a technical perspective, Southern Sun Hotels experienced a prolonged "island formation" pattern following the pandemic. We had advised monitoring for a clear breakout above the downward trendline, which occurred on 21st March 2021 at 175 cents per share. Since then, the share price has surged significantly, reaching current levels of around 840 cents. This reflects a strong recovery, and the share appears to have been previously oversold.
