Africa’s largest casino operator, Tsogo Sun Gaming, has emerged as a major player in the South African hotel industry by acquiring a 5% stake in the leading hotel chain, City Lodge. Share ownership data revealed that the stake was secured through HSS Investments and Entertainment Holdings, both subsidiaries of Tsogo Sun Gaming.
This move marks a potential shift in Tsogo Sun Gaming’s strategy, hinting at a return to the hotel business after the company split into separate entities – casinos, and hotels – in 2019. At the same time, the online casino sector is becoming wider and wider, as you can see here, where skilled technicians review and rate casino operators in South Africa based on various criteria, including security and reputation. Industry insiders speculate that this investment of Tsogo Sun Gaming could signify a strategic expansion into the hospitality sector.
Tsogo Sun Gaming and City Lodge Connection
Refinitiv and company shareholding data indicate that as of mid-May, HSS Investments and Entertainment Holdings collectively held up to 5% of City Lodge. Despite not being publicly recognized as Tsogo Sun Gaming subsidiaries, company registry information revealed a shared address and common directors, affirming their affiliation with Tsogo Sun.
An anonymous analyst from an asset management firm confirmed this connection, stating that share ownership data clearly demonstrates Tsogo Sun’s acquisition of City Lodge shares through its two entities since January.
Despite numerous requests for comments, neither Tsogo Sun Gaming nor City Lodge has provided official statements regarding the acquisition. City Lodge did acknowledge HSS Investments’ 5% beneficial interest in its securities on May 15 but made no mention of Entertainment Holdings or a link to Tsogo Sun.
Investment Surge
City Lodge’s current market standing reflects a trading value of 4.60 rand ($0.2484) per share as of Tuesday, approximately half its pre-pandemic value. This represents a significant discount to the replacement value of its assets, estimated at 10.60 rand a share, according to information released by the company in February.
The investment news comes after reports surfaced that Tsogo Sun, through its subsidiaries, had been actively purchasing City Lodge shares since January as part of a broader strategy to re-enter the hotel industry.
In an official statement, Tsogo Sun confirmed its acquisition of an approximate 10% shareholding in City Lodge, disclosing a payment of 136 million rand ($7.43 million) through unspecified subsidiaries. Meanwhile, City Lodge stated in a separate statement that Entertainment Holdings and HSS Investments, in aggregate, had increased their collective interest in the company to 10.0%.
Tsogo Sun’s decision to allocate additional cash for the year ending March 2024 to invest in the hospitality sector, pay dividends, and reduce debt signals a renewed focus on expanding its presence in the hotel industry.
Summarize
As of the market close on Thursday, Tsogo Sun shares on the Johannesburg Stock Exchange experienced a 1.68% decline. In comparison, City Lodge shares saw a 5.27% increase, outperforming the broader index, which closed up 0.73%. Investors and industry observers will likely closely monitor the unfolding scenario as Tsogo Sun Gaming navigates its potential re-entry into the hotel business.
