Market Analyst Expresses Optimism in SA Casino Market

sa-casino-optimismVanessa van Vuuren, a portfolio manager for SIM marketing analysts, said in an interview last week that local gaming operators continue to show confidence in the future of their businesses, despite flat earnings. Van Vuuren said that she believed the numbers were “a cyclical short-term phenomenon” and therefore management continued to invest in their businesses as they were sure the situation was not a permanent status quo.

Van Vuuren gave Tsogo Sun as an example of a business that saw a major slowdown but nevertheless continues to invest in growth and acquisitions. The analyst said that with the exit of SAB, Tsogo Sun’s major shareholder, and the need for the company to buy back its stock, there may be a negative impact felt in the short term, but positive results will definitely be felt after about a year because, as she explains, “you’re reducing the shares in issue by around 12 percent, so that’s very positive.”

Van Vuuren discussed the Silverstar Casino that Tsogo Sun completed recently in Krugersdorp, which drew down on the group’s earnings, as well as refurbishing in other hotels in its portfolio. She said that Tsogo Sun does not make decisions based on the short term. “They are making five to ten-year decisions as a management team, and they have very good capital allocators,” said Van Vuuren. “They’ve looked at their portfolio and they’ve seen where we can extract additional gain, where there’s capacity to put new casinos in or upgrade the casinos and they continue to invest through the cycle.”

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In addition, Tsogo Sun is looking to double the casino size at the Sun Coast in the KwaZulu Natalregion, which is a high growth gaming area, and is also investing heavily in Gold Reef City.

Speaking about the current casino situation in South Africa, Van Vuuren said that the majority of licenses are “dominated by Tsogo and Sun International and then the smaller players like Peermont.”

“What you’re seeing is that there has been a limitation,” she said. “The growth has slowed down as the consumer has come under a lot of pressure. We had a very strong growth in gaming in the previous decade. Having said that, since you haven’t had a lot of capacity coming on, there must be some pent up demand…that as soon as the economy improves, people feel wealthy, and there are better consumer disposable income levels, you should see the gearing of the current casinos to that.

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