Sun International Falls as Investors Take `Dim View' on Outlook

  • Economic-growth figures for South Africa missed forecasts
  • Casinos, hotels operating in `difficult macro environment'

Sun International Ltd. fell to the lowest in almost seven years in Johannesburg after expansion in the continent’s most industrialized economy fell short of forecasts, prompting concern that the outlook for the company’s hotels and casinos may deteriorate.

“South African casinos are actually quite resilient businesses and we are still seeing some growth on the top line for the industry, so that talks to the resilience of the business,” De Wet Schutte, an analyst at Avior Capital Markets (Pty) Ltd., said by phone from Cape Town. “But the market’s taking a fairly dim view on the valuations and the outlook.” 

Sun International dropped as much as 9.3 percent to 63.05 rand, the lowest since March 2009. The stock traded 5.1 percent lower as of 3:46 p.m. in Johannesburg, valuing the company at 7.2 billion ($457 million). The volume of shares traded was about three times the three-month daily average, according to data compiled by Bloomberg.

Gross domestic product rose an annualized 0.6 percent in the fourth quarter, compared with the 0.9 percent growth expected by economists surveyed by Bloomberg. The economy grew 1.3 percent for the whole of last year and the central bank, International Monetary Fund and World Bank expect it to expand by less than 1 percent this year.

Sun International’s 14-day relative strength index fell to 28.5, below the 30 level that signals to some technical analysts that a stock may be oversold and is poised to gain.

The company on Feb. 22 said that while first-half revenue climbed 11 percent to 5.8 billion rand, earnings before interest, tax, depreciation and amortization declined 0.8 percent to 1.6 billion rand in the six months ended Dec. 31.

“It’s a business that’s operating in a very difficult macro environment, but it’s also in restructuring mode,” Schutte said. “There are still a couple of deals that need to be concluded, so there’s still a lot going on for the group.”

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