Sun International takes a bet on online gaming in Africa

JSE-listed hotel and resort group Sun International is taking a bet on online gaming in Africa – and made a strong recovery from the Covid-19 pandemic, declaring a record dividend for the year to December 2022.

Sun International CEO Anthony Leeming said on Monday the group is on a focused journey to grow its current operating market and launch into new markets.

“In this regard, we have concluded a 70% investment in SunBet Africa Holdings, for a consideration of $3.2 million. The company has online sports betting and casino licences to operate in Ghana, Zambia and Kenya,” he said.

“We are in the early stages of rolling out the SunBet operating model and brand in these markets, which have attractive long-term growth potential.”

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Leeming said the investment in SunBet was concluded in September 2022. It has the licences and is now getting the operations right.

It should be launching the online gaming platform in key African markets early in the second quarter of this year.

Leeming said there are five investors in SunBet Africa Holdings, adding that these are parties who know the countries in terms of the mobile network side and had the online gaming licences for these areas.

He said it will be able to roll out the platform quite seamlessly into a lot of African jurisdictions, “with only some localisation requirement”.

Leeming confirmed Sun International is looking at expanding into quite a few other markets in Africa.

“Africa has really exploded in terms of mobile money and online and that sort of stuff. The potential is big and it’s a sizeable market,” he said.

“We have seen a lot of other international gaming guys looking into the market, so we are definitely not alone in trying Africa out here.

“A large number of people potentially gamble and online gaming is really coming in and payment gateways are available. They are the key for success and we are going to give it a good go.”

Expectations

Leeming said SunBet currently accounts for only between 2% and 3% of Sun International’s gaming income. And according to its results statement, gaming income from casinos, Sun Slots and SunBet (collectively) accounts for 80% of group income.

“Our target [for SunBet] is 26%, which is R2 billion in gross gaming revenue in about 2026. We are just under R400 million so it’s almost five times the amount and we are certainly this year looking at very strong growth.

“I think the margin is anything from 20% to 25% while we are still growing when we still do a lot of marketing and thereafter it will normalise at probably 25% to 30%.

“It’s a growth opportunity. We feel we have the know-know and the capability and it does not require large capital investment,” he said.

“It’s really been funded through SunBet, which has managed to fund its own growth quite comfortably. So it’s very capital light but potentially has a very good upside going forward.”

Full-year results

Sun International on Monday reported 44% growth in income to R11.3 billion in the year to end-December.

Leeming said a combination of market share gains for its urban casinos, the turnaround of its Sun City operations and exceptional growth in its alternate gaming businesses, plus sustainable cost savings among others, contributed to South African adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) increasing by 96% to R3.3 billion.

The adjusted Ebitda margin improved to 29.3% from 27.8% in 2019.

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Leeming said that without the impact of the net diesel costs of R53 million due to load shedding, the group would have achieved its target 30% adjusted Ebitda margin for the year.

Adjusted headline earnings per share rocketed to 439 cents from 44 cents in the prior year.

Sun International declared a record dividend per share of 329 cents.

The group declared a dividend per share of 88 cents for the six months to June 2022, which was its first dividend since 2016.

Income from urban casinos grew by 43% compared with 2021, with the overall urban casino operations generating adjusted Ebitda of R2.4 billion for the year, and the adjusted Ebitda margin improving to 36.4%.

Total resorts and hotels revenue increased by 65% to R2.57 billion compared with the prior year.

Overall, resorts and hotels generated an adjusted Ebitda of R450 million, achieving a turnaround from the loss of R56 million in the prior year and adjusted Ebitda of R300 million in the 2019 financial year.

Sun Slots’ income increased from R1 242 million to R1 491 million, with adjusted Ebitda up 17.2% from R313 million to R367 million for the year under review.

SunBet continued its strong growth trajectory, with overall income growing by 86% compared with 2021 – and growing by 135% in the second half of the financial year.

Outlook

Leeming said Sun International’s balance sheet remains strong and the group is focused on efficiencies and returns as it looks to protect and grow its revenue and margins.

“With the strong momentum that we have achieved and having the right leadership in place, we will ensure that our strategy will continue to deliver exceptional experiences for our customers and high attractive returns for our investors,” he said.

Analyst’s take

Independent analyst Simon Brown said Sun International used the Covid-19 pandemic to get its asset base and debt in shape and “fix a company that had become a little bit bloated and aimless in a sense”.

Brown said while the group has done incredibly well in the year to end-December 2022, he is concerned these might be the peak numbers for Sun International for a while, because of the tough economic environment and businesses struggling.

He believes some businesses, for instance, may have pulled forward offsite conferences following two years of lockdowns and at some point that could start to fade.

“It’s not that I think there is going to be a collapse. I think they are just going to find it harder to get really strong growth. But truthfully if they did, it wouldn’t massively surprise me,” he said.

Brown said there is potential growth from international consumers, adding that international arrivals in December 2022 were still down on 2019 figures.

He added that casinos, limited payout machines and online betting have been strangely immune to the troubled economic times.

Shares in Sun International rose 3.96% on Monday to close at R34.40.

This article originally appeared on Moneyweb and was republished with permission. Read the original article here.