Why Suns want Piermont: Emperors vs Grand West vs Monte

To be clear, Sun International paid R3.2bn in cash to acquire Emperors Palace and the Pyrmont Group for Emperors Palace alone.

True, the company has taken on R4 billion in debt as part of the deal, but it will return to a 75% payout ratio within two to three years of closing.

There are rumors that competition authorities are fed up with the deal, but the proliferation of sports betting operators such as Betway and Hollywoodbets (SA's two biggest companies) has seen the gambling market (sorry, “gaming” market) has recently expanded significantly. We expect this argument to be raised by both parties (Piermont is an active seller; its debt burden remains high).

So what is so attractive about the emperor?

Well, this will allow Sun International to operate on a large scale in the lucrative Gauteng market. Coincidentally, this agreement will split the country's largest rural market, along the N1/M1 motorway, exactly in half. Sun International will own Time Square, Carnival City, and Emperor's Palace on the east side. Tsogo owns Montecasino, Silver Star and Gold Reef City to the west, with the exception of the newly acquired Emerald Resort on the Vaal River (just because the N1 is turning west).

The “seriousness” of the deal became clear on Monday following the release of a transaction notice to Sun International's shareholders.

In the first six months of 2023, Emperors Palace generated R1.06 billion in revenue from gaming (net game wins, i.e. a portion of stakes), food and beverage, rental and room revenue. Unsurprisingly, casinos are responsible for the majority of this (84%).

On this R1.1 billion in revenue, earnings before interest, tax, depreciation and amortization (EBITDA) were a staggering R461.5 million. This corresponds to an EBITDA margin of 43%.

Read/Listen: Sun International bets big on Piermont Group

The country's two most lucrative casinos are Montecasino and GrandWest, although few details have been released since Peermont was delisted in 2007 in a private equity takeover.

The former is located in a prime location in Johannesburg's Fourways, while the latter dominates Cape Town's metro. The Western Cape government is proceeding with painful haste to license a second operator in the city.

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Montecasino owner Tsogo Sun has not disclosed specific performance of the facility since 2019. The company organizes its casinos by region, and Gauteng will include Montecasino, Gold Reef City, Silver Star, and (most recently) Emerald.

Monte vs Grand West vs Emperors vs Time Square

However, there is historical data that allows us to estimate that Montecasino accounts for approximately 55% of Gauteng's revenue and over 60% of its EBITDA.

In the 12 months to September, Montecasino may have generated R2.5 billion in revenue. Tsogo disclosed Montecasino's EBITDA margin (38.8%) in its latest annual report, but this margin has become even higher due to the return to normal trading conditions after the coronavirus pandemic. is almost certain.

With an EBITDA margin of ±40%, Montecasino will generate EBITDA of R1 billion. This is big business and brings in huge profits.

GrandWest is equally impressive (albeit with lower margins). In the 12 months to June, the company reported revenue of R1.8 billion and EBITDA of R638 million.

Emperors Palace sits firmly in second place nationally. Extrapolating his 12 months of trading to June, we see revenue of around R2.1 billion and EBITDA of just over his R900 million. The reported EBITDA margin was 43%, which is at its unseasonal peak between July and December.

Read: MEC must repay increased taxes to Sun International and Piermont Global

Time Square, Sun International's big bet in this market, generated revenue of R1.5 billion in the 12 months to June, with Eibtda of almost R600 million (38% margin). It is unlikely that it will become significantly larger. It could probably reach the Grand West level – it also has exclusivity (in Pretoria).

*Finally released in 2019

small operation

The sheer size of Emperor's Palace means that Piermont's other 'regional' operations – Umfolozi in Empangeni, Rio in Klerksdorp, Graceland in Secunda, Thaba Mosyate in Burgersfoort, Horoni in Thohoyandou and Mmabato Palms in Mahikeng , Bethlehem's Frontier Inn) is insignificant.

Together, these casinos reported revenue of R390.5 million in the first six months of 2023, with EBITDA of R71.4 million.

These small businesses represent a quarter of Piermont's group revenue but only 13% of its profits.

They are a drag on profits (never mind emerging online and sports betting operation Palacebet). There are three additional accommodations in Botswana.

Surprisingly, these casinos (including Botswana) have an average Ebitda margin of 18%.

Sun International has similar problems, with its five smallest casinos – Boardwalk in Kevera, Meropa in Polokwane, Windmill in Bloemfontein, Flamingo in Kimberley and Golden Valley in Worcester – accounting for just 10% of its revenue and EBITDA. . At least these numbers match. The profit margin is much better than Piermont's regional craft's 26%. (The jury excludes “Wild Coast Son'' and “Maslow Sandton'' who have been underperforming every year. They are uncomfortable within the group.)

Sun International CEO Anthony Leeming has hinted at the possibility of temporarily separating the company's smaller casino operations.

It is conceivable that these could be divided among shareholders. This makes a lot of sense. They're all still profitable, but their revenue profiles dilute the performance of the stable giants.

Imagine a business consisting only of Emperor's Palace, GrandWest, Time Square, Sibaya, Carnival City, Sun City (and perhaps the Table Bay Hotel, which is well-positioned to capture the huge profits enjoyed by the group's other top businesses) please try. )?

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