Sun International’s tilt to online gaming is paying off, dramatically: sales from its SunBet business grew 60% during the year to end-December, pulling in earnings of R363m – a quarter of its total earnings of R1.3bn. It’s telling that in the group’s results presentation, SunBet has the biggest write-up, though strong tourism numbers have done well for its resorts and hotels.
Sun’s shares rallied 2.6% on the numbers, which included a 237c per share dividend, putting Sun on a dividend yield of 10.2%.
Yet there’s also a mounting backlash against unfettered online gaming, as South Africa’s regulators drag their heels in imposing online laws. Currency spoke to Sun CEO Anthony Leeming about the results.
Are you heading for a collision with folk who are worried about the relentless rise of online gambling? Is there a point at which SunBet becomes too successful for Sun International?
I don’t think so, though there is reason to be concerned. As an operator, we are probably going to start doing more because regulations are taking too long; and we’ve put procedures in place and we’ll do what we can. If it is tightened up, we’ll win on the casino side. We’ve got to be in this market, there’s nothing wrong with it as long as it’s well regulated and responsible gaming is at the heart of it. I do think when they clamp down with restrictions it will be tougher for the smaller players, and we need to do it responsibly.
If regulations do come in, would you expect a big slowdown in user and depositor numbers? Is that a realistic and good thing?
I think as an industry we would hope there is some control of it – from the Sun side we would still grow. Our brand is not as well established as Hollywoodbets or Betway so we have room to establish our brand further. I think as regulation comes, the first thing they’ll tighten up on is marketing and advertising, and often for the bigger player that’s okay. It depends on what sort of restrictions they put in place – worldwide they’ve tried everything and I think the key is to clamp down on illegal operators. We’re behind the rest of the world, but online companies do still perform exceptionally well all over the world.
Is that why the growth in urban casinos – sales were up just 0.7% – is that much more muted?
Ja. If you look at where most of the online revenue is coming from, it’s slots and table products. That’s where the money is being made by the online operators and that’s a traditional casino customer. Sports betting is not big. Post-Covid we’ve really battled to get to pre-Covid numbers, but fortunately we seem to be bottoming out and we should hopefully grow from here, so the erosion of our market has probably happened. Certainly it’s a mature industry and with the availability of online, not the easiest.
Your hotels and resorts had a good year – total resorts and hotels sales were 7.6% up, with rooms, food and drinks sales 10.9% higher. What were the actual occupancies, especially at Sun City?
Sun City was basically in line with the prior year at 66%; Table Bay was at 72%. So hotels performed well, and I think there’s some scope for growth at Sun City. We were impacted a bit by the elections, and I think with increased foreign tourism especially from the East that should help us. But 66% is good. Our vacation club runs north of 80%.
The one thing that didn’t happen in the year is a takeover of Peermont because the Competition Commission doesn’t want that to go ahead and it’s been referred to the Competition Tribunal now. Are you losing enthusiasm for the deal? This is regulatory purgatory …
We have to wait for the tribunal hearing in May and I do think deal fatigue has set in on both sides. [Peermont] can’t move forward and we can’t either and it’s very frustrating that these things take as long as they do.
All things being equal, do you still want Peermont?
It’s a bit more neutral – if it happens, we’re happy, if it doesn’t, we’re okay. But certainly Emperors Palace is still a great asset and we think it fits well in our strategy.
If it does happen, will it have a marked impact on your debt ratios (which you have sweated to bring down; your debt to earnings ratio is at 1.5 times, half the bank’s upper limit)?
Look I think our ratios will go out a bit, but part of the reason we’ve been paying so much cash out is because of the amount of cash we generate. We think that within two years it will come back to below two times cover; we’ll probably pay out 15% [of earnings] during that period while debt de-gears. So it’s a cash-generative business and we believe [the acquisition] is still value accretive.
Have shareholders actually said – now that the excitement has gone out of the deal announcement as you wait in regulatory limbo – that they’d rather you walk away and just keep on paying out fat dividends?
They know we’re in this regulatory phase and we can’t just change our decision; we signed an agreement and we’ve got to follow through, so, no, they haven’t done that.
For the year ahead are you feeling more chipper or is it more of the same, given that we’re not seeing any evidence of stronger economic growth?
It feels a bit like déjà vu, but a slightly better environment in terms of lower inflation and lower interest rates. But other than that, with all the political stuff going on it’s very hard to determine what’s going to happen. The fact that the rand is relatively strong is a bit strange; it’s a strange time and a strange world. We expect strong growth in online still, slow single-digit growth in urban casinos and hotels and resorts still doing okay, but it does feel like we’re on a bit of a treadmill doing the same every year, which is not great; we need a bit of stimulus and that just doesn’t seem to be coming.
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