Why this South African company is a good stock pick right now
Asset management company, Anchor Capital recently published its top five share picks for 2017, which includes the name of the country’s leading hotel and casino chain.
Sun International is preparing to open its first new development in 15 years – the R4.26 billion Times Square hotel and casino situated in Menlyn Maine in April 2017.
And according to Anchor Capital, the new site could add massive value towards Sun International’s share price.
Having listed on the Johannesburg Stock Exchange in in the early 1980’s, Sun International has seen its market cap grow to R9.45 billion and a share price exceeding R86.50.
According to Anchor Capital, “in 2017, the wise investor will follow this star to Menlyn Maine, where Sun International will unwrap their most generous gift to shareholders yet – the new Time Square hotel and casino”.
It noted that the entertainment ‘super-complex’ will be South Africa’s second largest casino, which is expected to contribute over R1 billion in annualised EBITDA once fully operational.
Read: A look at the new R4.3 billion hotel and casino being built in Pretoria
“We estimate that the operation will add around R32 in intrinsic value per share – significant in the context of today’s share price of R85, which in turn we think is not discounting any of Menlyn Maine’s value contribution,” it said.
Anchor Capital also pointed out that 2017 will mark the first full year of consolidation of the newly-formed Sun Dreams operation in South America, after the merger of Sun International’s Latam assets with Chile-based Dreams S.A.
It said that favourable valuation terms of Sun’s Latin American assets in the merger should result in material earnings accretion for the group in FY’17 (est. 150 cents), with recent delays in Chile’s municipal license renewal process a net positive as the effective life of existing licenses are extended.
“We believe that market scepticism around Time Square’s success and overblown concerns (in our view) about the group’s balance sheet are creating an exceptional opportunity for investors to take advantage of a level of mispricing not often seen,” the asset management firm said.
“Once Time Square is fully operational, we calculate long-term sustainable earnings of around R9.60 per share and we apply an exit multiple of 12x to calculate a fair value twelve months out of R115,” Anchor Capital said.
“A prospective return of 35%…makes Sun International one of our top picks for 2017.”
It warned however, of a more protracted period of moribund casino revenues currently being experienced in South Africa, which would place further pressure on margins of the group given inflationary cost escalations.
Anchor Capital also highlighted four additional shares to watch in 2017, namely: Rhodes Food Group, Aspen Pharmacare, Naspers and RMI Holdings.
Read: Everything you need to know about gambling in South Africa
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