Navigating setbacks and successes at Sun International

Sun International’s investment case has repeatedly turned on whether current accounting earnings reflect its future cash-earning power and whether management allocates capital well.

• In 2001, heavy upfront investment in casinos, resorts and hotels depressed reported earnings through depreciation and interest, while completed assets were expected to generate cash and repay debt. The share price rose from R30 to above R100 by 2007.
• By 2019, the share price had fallen to roughly R40 from more than R130 in 2007 as weak South African consumer spending, gambling competition, hotel oversupply and value-destroying acquisitions weakened the business.
• COVID-19 pushed revenue close to zero while fixed costs continued, sending debt to R15.0bn in June 2020, more than 200 times pandemic EBITDA, against a usual sector level below 3.0 times EBITDA. The share price reached R11 in May 2020 and the market capitalisation fell to R1.1bn.
• A R1.2bn rights issue at R9 per share in June 2020 helped the company survive prolonged lockdowns, renegotiate debt terms and maintain fixed-cost payments. The share price recovered above R40 by 2023 after cost cuts, asset disposals and restructuring.
• Online gambling rose from less than a quarter of South Africa’s gross gambling revenue in 2019 to more than 70% by 2025. Sunbet became Sun International’s largest earnings asset, while potential national licensing, tax and advertising reforms remain material risks.
• CEO Ulrik Bengtsson, appointed in 2025, is pursuing an omnichannel strategy that requires substantial upfront investment. Net debt is below 2.0 times EBITDA, although the strategy’s results in South Africa remain uncertain.

Takeaway: Sun International may again be understating future earnings during a period of investment, but investors must test the omnichannel strategy, regulatory outlook and management’s capital allocation against the company’s earlier mistakes.