Sun City is struggling – but there are positive signs

Sun City is South Africa’s top holiday resort and one of the country’s best-known landmarks, but it has been struggling financially for years.

Sun City is owned by Sun International – a company that started as the Southern Sun Hotel Company in the sixties by Sol Kerzner and South African Breweries.

In 1983 Southern Sun split its interests into two entities:

• Sun International, owned 20% by Southern Sun, retained all the casino hotels.

• Southern Sun retained non-casino hotels.

In 2004, Southern Sun sold its shareholding in Sun International. As part of the deal, Kersaf Investments and Sun International merged to form Sun International Limited.

Today, Sun International Limited has a market cap of R7.73 billion and owns 13 casinos, four resorts and hotels, and other gaming assets.

The hotel group had big revenue swings over the past eight years. It increased from R9.97 billion in 2014 to R16.6 billion in 2018, with average annual revenue growth of 13.9%.

However, since 2019 the group has seen its revenue slip to a low of R6.01 billion in 2020. It increased to R7.8 billion over the last year, but recovery has been slow.

Sun International’s share price also suffered significantly, falling from R107.84 to the current level of R31.12.

The company faced severe headwinds during the lockdown, but the recovery makes it an attractive stock among some investors.

People are returning to live conferences and entertainment and are taking longer holidays which bode well for the company.

Sun International reported a 37% increase in year-on-year group income during its interim results and a positive net profit.

The company generates the largest portion of its income from its casinos, followed by its resorts and hotels.

Sun City is an important asset for the group and accounts for 13% of Sun International’s South African operations by revenue.

It is an exceptional resort, but it has struggled to grow revenue.

The resort has been losing business and was severely affected by the 2020 lockdowns. Its revenue fell from R1.6 billion in 2019 to R699 million in 2020.

It showed some recovery in 2021 but is still far off from its 2017 revenue of R1.8 billion.

The resort has not made money since 2018 and only generated meaningful operating profits in 2017.

A promising sign is that the group was able to decrease its losses for the 2021 financial year. However, it is still a long way from being profitable.

Sun International has launched an aggressive campaign to modernise Sun City and cut costs to reach profitability.

It is currently refurbishing the Palace of the Lost City guest rooms and has upgraded the Valley of the Waves infrastructure.

The engineering function at Sun City was also fully outsourced during 2021, which saved money and improved operations.

These initiatives are paying off as Sun City managed to deliver positive operating profits in its latest interim results.