It's taken the Don Group a long time to show definite signs of turning the corner financially. These past five years have been characterised by high debt burdens coupled with a period of low hotel occupancies.
And though room occupancies have improved in the hotel industry in the past three years (other than in the top end of the market), the Don was unable to exploit that improvement because of high debt levels and escalating rentals.
That's all changed with the repurchase of its properties, using cheap funding - prime less 1,5% - from the Industrial Development Corp. The Don is now "master of its own house", owning all of its hotels: two in Pretoria, three in Sandton and one each in Rosebank, Bruma, the Johannesburg airport precinct, Cape Town and Durban.
The property portfolio was revalued in the middle of 2005 at R147m. All of the hotels are being refurbished and air conditioning is being installed in all units.
There's a note in the executive review that states that "the high-speed Gautrain project . . . may have an impact as yet unknown on certain hotels located within the Sandton area".
For the year to June 2005, revenue rose from R41,2m to R45,2m and at the operating profit level there was a profound swing from the previous year's loss of R1,2m to a profit of R3,9m. Further down the income statement, earnings were negatively affected by a still-high interest bill and a small pretax loss was sustained, though this was more than offset by a favourable tax input, resulting in a small bottom-line profit. Estimated tax losses available for set-off against future taxable income amount to R89,5m.
Provided the Don can keep the yield it gets from selling its rooms to its guest, above its weighted average cost of capital, the turnaround experienced in financial 2005 should be sustained. As local tourism grows , the attraction of its offering to the corporate traveller should improve.
The Don is a punter's delight, having bounced between 6c and 25c in the past year, coupled with a good trade of more than 6m shares a month. Net asset value per share has jumped from 7,4c to 25,5c, so there may yet be some more short-term headroom left in the share price.
One of the Don's biggest perceptual problems is being compared with operations such as Sun International (SI), Peermont and City Lodge, its main listed peers. Most of these companies, especially City Lodge, have outstanding track records and the Don's performance looks poor in comparison.
But all these operations have diverse income streams - SI and Peermont have gaming and hotel operations while City Lodge has four different brands in its portfolio, highly focused towards different segments of the market.
The Don, on the other hand, is a single brand entity - all-suite hotels. It's interesting to note that The Courtyard, City Lodge's all-suite chain, hasn't performed especially well either.
Almost 60% of the Don's issued equity is held through Business Venture Investments No 295 (BVI). Don CEO Thabiso Tlelai owns 66,1% of BVI through a family trust. This translates into an effective 40% holding in the Don.
The black empowerment component of shareholding exceeds the minimum requirement of 25% and entrenches the Don as one of the few black-owned and -managed enterprises on the JSE.
Tlelai's personal holding in the company is a huge vote of confidence in its future.
