Tsogo Sun Hotels Up as ‘Strong Portfolio' Draws Buyers

(Bloomberg) -- Tsogo Sun Hotels Ltd. climbed on its Johannesburg stock exchange debut as the South African hotel operator attracted investors with the potential of its portfolio of properties.

The stock rose to 4 rand by the close Wednesday after first trading at 2.7 rand, valuing the company at about 4.2 billion rand ($280 million). Some 700,000 shares were traded. The hotel operator was carved out of Tsogo Sun Holdings Ltd., which declined. That company now houses the group’s casino operations.

“Many stocks are deemed undervalued on the JSE right now and management teams are trying to find ways to drive share prices higher,” Nolwandle Mthombeni, an analyst at Mergence Investment Managers in Cape Town, said by email. “This move allows investors to invest in either the casinos or the hotels.”

The newly listed company has 110 hotels, with a combined total of almost 19,000 rooms, ranging from budget to deluxe offerings. Tsogo Sun Holdings has said the hotels division services a different customer base to the gaming division and is subject to different demand and risk profiles, particularly in regulation.

“They have a very strong hotel portfolio and although it’s still operating at lower than desired occupancies, it’s a much lower risk and has a more stable earnings profile,” Mthombeni said. “If business confidence recovers, it will do well.”

The gaming business relies largely on South African consumers’ discretionary spending, which makes it higher risk and liable to further challenges if the economy doesn’t improve, Mthombeni said.

To contact the reporter on this story: Adelaide Changole in Nairobi at achangole2@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, John Viljoen, Jon Menon

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