Our opinion on the current state of TSG

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 six months to 30th September 2023 the company reported income up 7% and headline earnings per share (HEPS) up 48%. The company said, "The cost of diesel of R55 million for the period and the adverse effect on income due to high levels of load shedding, negatively impacted the group's interim period position and margins. Higher interest cost of R54 million also had an adverse effect on headline earnings". 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.