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Morula casino move could cost billions

22 Jul 2013

Sun International could face a huge development bill, equivalent to roughly a quarter of its market capitalisation, if it's allowed to move Morula Sun casino from Mabopane to the more vibrant surrounds of Menlyn in Tshwane.

The move will greatly enhance Sun International's share of the Gauteng casino market for the company that also owns Carnival City in Brakpan.

The Morula Casino, built in the late 1980s, has suffered revenue declines in recent years as its location is not as central as other urban Gauteng casinos.

Sun International's chief executive Graeme Stephens says the casino has been competing against growing electronic bingo and limited payout machine operations. In the six months to end-December, Morula generated revenue of R124m and operating profits of just R10m. The operating margin was 14,5% - a sliver compared with Carnival City's 31,2%.

Stephens says nothing further can be done to reverse the Morula decline.

The rub, though, is that for Sun International to shift its Morula casino licence to the more viable eastern suburbs of Tshwane it will have to participate in the new large-scale mixed-use development, the R8bn "Green City" project at Menlyn Maine. Sun International will invest R3bn in the Time Square entertainment node.

The new Menlyn casino will have 3,000 slot machines and 100 tables but will initially open with 2,000 slots and 60 tables. (Most of the jobs will be transferred from Morula.) Stephens says the company's market research shows a demand for the hotel and convention space in Tshwane as well as the proposed entertainment arena.

"Research indicates that for many customers from Tshwane the location of the existing Gauteng casinos has made reaching them difficult."

Stephens is confident Sun International will get a decent return from the project. "The proposed development will deliver an overwhelmingly compelling package of substantial economic and financial returns to all stakeholders," he says.

The development cost offset at Morula will probably be keenly gauged by the JSE's largest casino group, Tsogo Sun, which could benefit if proposals to allow an existing Western Cape casino licence to be transferred to Cape Town materialise.

Source: Financial Mail via I-Net Bridge

Source: I-Net Bridge

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