Online momentum, casino green shoots

#themes: online betting, special dividend, capital markets day

Sun International's FY25 results were encouraging, underpinned by strong momentum in online betting (outperforming the sector and SBGSE), early signs of recovery in land?based casinos, and a 100c special dividend implying an attractive c.14% yield. The group is increasingly focused on strengthening its omni?channel model to enhance customer lifetime value through deeper engagement across the ecosystem. We see a structural competitive advantage in SUI's scalable online platform, integrated with its land-based gaming and hotel assets, particularly with live casino games now offered online via SunBet. In addition, medium-term capex guidance of R900m–R1.2bn and a robust balance sheet (ND/EBITDA: 1.4x) provide headroom to sustain a 75% payout ratio and the approved three?year buyback of up to 2% of shares per annum, which are key in sustaining investor interest, in our view.

Key Group results highlights: (1) Total income was up 3% (SBGSe: 3.5%) and +7% ex.  Table Bay Hotel (TBH). Outlook is positive, with YTD total income in line with 2H (+7%). (2) EBITDA margin was 26.6% (SBGSe: 27.1%) and 26.6% ex. TBH. Adj dHEPS of 564c was up 7%, marginally below SBGSe (568c: +7.8%). (3) In addition to dividends (429c + special), SUI bought back 2.5m shares (c. 1% of total outstanding shares) worth R100m (c. 1% of market cap) in FY25).

SunBet ‘the fastest growing platform in SA' accelerated (2H: +78% vs. 1H25: +70%, FY25: +75% vs. SBGSe: +58% and Sector: +45%) driven by strong customer acquisition and retention (c. 60% of customers retained after three years. CY30 market share ambition is set at c. 8% (CY25: 4.5%) in an online market expected to reach R100bn, implying a >25% (SBGSe: +25%) 5yr CAGR for SunBet, well ahead of the sector (+15%), potentially supported by investment in tech-driven product offering to ensure leadership instead of at par offering. EBITDA margin expanded to 36.9% (+610bps, SBGSe: 34.2%), prompting an upgrade to c. 38% (prior: 36%) over the medium term. In our view, at this level, SunBet has capacity to absorb tax increases: at a more likely 6%-7%, we estimate a 300bps margin impact and c. 30c p.a. earnings drag (R2-3/share), assuming bonus reductions and lower marketing spend, holding all else constant. However, a 20% additional tax (unlikely, in our view) would be materially negative, implying 1900bps margin compression and c. 190c earnings drag p.a, or a valuation impact of R11-R14/share (see more detail in the report).

Urban casinos ‘the house re-imagines ways to win': Self-help initiatives (pricing, staff training and floor optimisation) are seemingly gaining traction, with total GGR (urban + resort) turning positive in 4Q25 despite broader sector contraction, which in our view supports investor confidence in the new CEO (Ulrik Bengtsson). Market share expanded by 90bps to 46.6%, reinforcing leadership, while the ambition to reach 48.4% by 2030 implies a >3% 5-year CAGR (sector: +2%; SBGSe: +2.6%). However, we think EBITDA margins (FY25: 31.7%, ?200bps) are likely to continue to ease in FY26E (31.5%) and FY27E (31.3%), albeit at a slower pace, before stabilising thereafter.

SunSlots: In our view, the rollout of Type B licences in the Western Cape is a key medium?term growth driver given higher machine density. We lift the five-year income CAGR to 6% (from 2%), conservatively below management's c. 12% guidance to reflect potential deployment delays and execution risk. FY25 EBITDA margin dipped (-1%) to 23.1%, but we expect a gradual recovery to 26% by FY29/30E as new sites mature. Resorts and hotels performance to be anchored by SunCity and recovery in Wild Coast Sun. We note recovery in overseas tourists is key to supporting occupancy rates.

After incorporating the results and 2030 ambitions, we upgraded our fair value range to R59–R65 (prev. R50–R57), implying a total return of 59% to 74%, including a 14% DY. We estimate FY26E and FY27E Adj. dHEPS of 739cps (+31%) and of 844cps (+14.2%). The FY26E step-up is driven by the exclusion of a once-off, non-cash R348m put-option revaluation recognised in FY25. Key risks: (1) Tax reform, (2) Advertising restrictions (3) Regulatory overhang (4) heightened inflationary pressures.

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