The leisure & hotels sector of the JSE Securities Exchange is substantially larger in terms of its market capitalisation than it was a year ago. This is due to organic growth and new listings.
The sector as a whole was much larger a few years ago because it also incorporated beverages and was dominated by SAB, as it was then known. But when SAB migrated to the new beverages sector along with its subsidiary ABI, the leisure & hotels sector lost a lot of its attraction for analysts.
That is changing as a number of small-cap stocks have shown outstanding share price growth in the past couple of years. The reorganisation of the former Kersaf and Sisa into Sun International (SI) has also helped to improve the visibility and market capitalisation of the sector. If and when Tsogo Sun decides to list, this will complete the picture and, with more than R20bn of market capitalisation, the sector may well regain its former attraction for investors.
Talking of new listings, Peermont Global listed late last year. It was a long time in coming, but was greeted enthusiastically and the share price has performed well since listing. Established in 1995 by ex-Sun International director Ernie Joubert, the group's most recognisable brand was Caesar's in Kempton Park in Gauteng. Recently, Peermont changed the name from Caesar's to the less memorable Emperor's Palace.
The hotels & leisure industry in SA is broad and diverse. Though it's dominated by large hotel and casino groups, there are many other operators that are classified under this broad heading. For example, fast food, "quick service restaurant" chains are also included. The leisure & hotels sector comprises 13 companies, with a combined market capitalisation of more than R17bn
Not surprisingly, the top three companies in the sector by market capitalisation are all hotel/casino companies - Sun International, Gold Reef and Peermont (which doesn't appear in the table because it has yet to publish a full-year's results). And the attraction of these companies is predicated on their casino rather than hotel operations. Lower interest rates have had a positive effect on casinos in the past two years. Provided rates don't change too much, the outlook for these operations remains good.
But the attraction of casinos lies more in their ability to generate cash than longer-term earnings growth. With the recent announcement of a new casino on the West Rand and the construction of SI's small casino in Worcester in the Western Cape, it's likely that no more new casinos will be constructed because the market will have been saturated and no more licences are scheduled to be granted.
So earnings growth for many of the hotel/casino resort companies may have to come from offshore developments.
Foreign tourism growth to SA has slumped in the past couple of years, due mainly to the effects of the strong rand. This has hit Tourvest especially hard.
But it's not only the rand to blame for the slowdown in foreign tourist numbers. Logistical problems such as shortages of seats at peak holiday times will have to be rectified and government needs to put more effort into promoting SA as a holiday destination.
The star performer of the sector last year was the reconstituted Famous Brands (formerly Steers). The share price trebled last year.
