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PDSnetSA
Nov 15, 2023 6:08 AM

Our opinion on the current state of TSG 

TSOGO SUN LIMITEDJSE

Description

Tsogo (TSG) is a gaming, hotel and entertainment business which has split into separate gaming and hotel businesses in order to unlock shareholder value and to enable each business to become much more focused. As President Ramaphosa stabilises the economy, following the pandemic and introduces more growth-oriented policies we can expect business and consumer confidence to gradually recover. The company's investment in limited payout machines (LPM) and electronic bingo terminals (EBT) has proved to be profitable. These are located mainly in restaurants and bars and outperform larger gambling outlets, but they are impacted by COVID-19. In its results for the year to 31st March 2023 the company reported income up 27% and headline earnings per share (HEPS) up 38%. The company said, "The group also managed to reduce its net interest-bearing debt and guarantees by approximately R1.0 billion, from R9.0 billion at 31 March 2022, to R8.0 billion at 31 March 2023. The cost of diesel and the adverse effect on income due to high levels of load shedding, especially in January and February 2023, negatively impacted the group's expected year end position and margins". In a trading statement for the six months to 30th September 2023 the company estimated that HEPS would increase by between 43% and 51%. We have been saying for some time that the share looks oversold to us. Since COVID-19, the share has been in an extended "island formation" but it has broken to the upside - which probably indicates that investors were overly pessimistic. We believe that it still represents good value at current levels.
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