GrandWest, the casino precinct that has enjoyed an extended period of exclusivity in Cape Town, is no longer the ace in gaming group Sun International’s operational pack. In the six months to end-June, sports betting and online gaming segment Sunbet trumped GrandWest and Sun’s other large casinos on earnings before interest, tax, depreciation and amortisation (ebitda) and operating profit.
The scoreboard will show GrandWest eked out ebitda and operating profit of R297m and R199m respectively from revenue of R894m, while Sunbet managed R301m and R239m from revenue of R871m. For Sunbet, that’s a 34.5% margin, which compares favourably with the best casino precincts in the country.
That margin is critical, with Sunbet notching up revenue growth of more than 70% in the interim period — a growth rate that must temper in the coming years. Sun provided a graphic breakdown of the Sunbet business platforms, which showed gains of about 7% and 9% in the traditional sports betting and live casino games, but a 128% surge in the slots offering. Crash games such as Aviator and Skyward showed a 45% plunge — though Sun’s new CEO Ulrik Bengtsson advises not to read too much into the interim performance, as it tends to be volatile.
While Sunbet maintains a most impressive stride, the segment still represents only 14% of the nearly R6.2bn total interim revenue and 19% of total ebitda of R15.74bn. If Sun had been successful in acquiring rival casino group Peermont, it would have been even less — and I think one or two punters are quite happy that deal is off the table (for now).
So how does Sun ratchet up the online gaming offering to a more compelling balance? One way might be to trim the casino portfolio. This could entail, as I have suggested a few times before, retaining the big properties such as GrandWest, Time Square, Sibaya and possibly a reinvigorated Sun City — but bundling the smaller precincts as well as the Sun Slots limited-payout machine operations into a separate grouping tagged for sale.
In the investor presentation, Bengtsson referred to “various opportunities to scale and invest in the [online] business”. This surprised me a bit. The way I understand it, the sports betting/online gaming market is dominated by three large players, with Sunbet the biggest of the smaller players. The market outside the realm of the big players is fairly fragmented, with a surfeit of marginal players which would probably add risk rather than reward to Sun’s Sunbet offering.
Bengtsson says the opportunities are on the “ground floor” — meaning the gains for Sunbet will come from new products, technology and additional capability. Presumably Sun shareholders should not be thinking of acquisitions that would bring extra swathes of market share, but selective opportunities that hone and enhance the Sunbet offering. Such deals may not justify a cautionary announcement, but might have an impact further down the line.
The average cash deposits were R23.4m a day at Sunbet — more than double those of last year
Bengtsson says Sun is actively looking for selective mergers & acquisitions to support the growth in online gaming, but stresses Sun needs more time on this front. I don’t think Sun needs to rush any dealmaking in the online sphere. There seems to be ample room for further short- and perhaps medium-term growth. At the end of June, Sun disclosed the average cash deposits were R23.4m a day at Sunbet — more than double those of last year, while new sign-ups increased by 422,000 compared with 228,000 last year. These are two of the reasons Sun is trading at a nine times earnings multiple, and its main rival Tsogo Sun — which is near the back of the field in the online gaming sprint — trades at less than five times.
Moving to more staid issues, has Remgro finally started to clean up the many rats and mice it has in its investment portfolio? This week Remgro confirmed the unbundling of its influential stake in free-to-air broadcast group eMedia Holdings. I’m not sure what I am going to do with 42 eMedia shares, other than try to accumulate a more meaningful stake in this underrated and underappreciated media group.
In Remgro’s last set of results to end-December 2024, a chunky R16.3bn was lumped anonymously under “other investments” — excluding minority stakes in Discovery and FirstRand, which Remgro is expected to sell. And then there are legacy holdings such as Wispeco as well as Seacom and Business Partners that will never in a million years move the needle at Remgro. There’s still plenty work to be done. Unbundling eMedia is as good a place to start as any.
On the other side of the coin, there will surely be increased clamouring when Remgro releases its results later this month to see what the group’s plans are for food businesses RCL and Rainbow Chicken, where it is a properly dominant shareholder. I wonder if Rainbow might not be ushered into a larger international poultry group (like Distell was pushed into Heineken) in exchange for a significant minority stake. RCL, of course, has an obvious merger opportunity with Remgro-owned spreads business Siqalo Foods. With the market showing little appetite for RCL surely the time is ripe for Remgro to execute on this?
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