RTG evolution, value on recovery from pandemic?

BY CETERIS PARIBUS

Despite Covid-19’s grip on the tourism sector, Rainbow Tourism Group (RTG) has been apprehensive enough to ride on the digital wave over the past few years through an initiative termed the RTG Virtual. RTG Virtual is a partnership platform between RTG and selected hotels, lodges and tourism activity companies in Zimbabwe.

This model has seen RTG spread its geographical presence into areas it does not have any hotels through partnerships with small-to-medium hospitality players. According to the pre-pandemic 2019 financials, the e-commerce channel registered growth in foreign revenue by 10% to US$2 million from US$1,8 million in 2018.

Gateway Stream super app now has several services and products, including hospitality, online grocery services, ride-hailing, with over 17 000 rooms across 16 African countries and 8 000 listed household and hardware and appliances. The ride-hailing service has over a thousand drivers to date.

The group’s digital foray could possibly be the dark horse for RTG as it poses enormous value growth going into the future. While the digital channels of the hotelier currently contribute less than 10% to the group’s revenue, played right, this avenue could potentially generate over 40% of the firm’s revenue over the next five years. To achieve this evolution, bold and radical steps need to be taken. With ZWL3,5 billion in total assets, sound investment is imperative to position the RTG Virtual offering to compete against global giants such as AirBnB and Trivago, among others, who have a solid market share of the African digital tourism market.

A rights issue to capitalise the digital operations could create worth in this regard. However, given the volatility and inconsistent government policies in Zimbabwe, a dual listing on the Botswana or Johannesburg Stock Exchange would not be far-fetched, once suspension of fungibility is lifted by the government.

To take a jog down memory lane, a decade ago RTG was grappling with perennial losses and dire corporate governance issues. RTG has over the years turned the tide declaring its first cash dividend in 20 years in 2019. In 2013 RTG carried out a recapitalisation exercise completed through a US$10 million loan which was used to restructure its short-term debt and through a rights issue which raised US$4,5 million. The results were almost instant as the hotelier posted a US$1 million profit for the 2013 fiscal year from a loss of US$6 million in 2012.

In 2017 RTG undertook a successful balance sheet restructuring exercise to raise US$22,5 million by way of a rights issue linked to debentures. In 2020, the group repaid a ZW$16,7 million debenture in full. This instrument had been issued in February 2018 at an interest rate of 6% and tenure of seven years. The early repayment of the debenture released the group’s assets, which were pledged as security, reducing the group’s gearing to just 1%.

RTG scooped the 2020 ZSE Quoted Companies Survey Digital Innovations awards for its outstanding digital innovations drive. The innovation run continues as RTG launched a digital music platform; the Gateway Stream Music.

At a cost of US$4,4 million, the group undertook the refurbishment of Rainbow Towers Hotel during the first quarter of 2020 — the hotel’s first full room refurbishment since its construction in 1985. This compliments the renovations of its other hotels with Rainbow Bulawayo having been revamped in 2019.

On the ZSE, the undervalued RTG stock has fared not too well in 2020, as it shed 1% of its value versus an average surge of 1222% in the whole of 2020. In comparison, the African Sun stock recorded a 38% increase, while the overall market saw a 71% growth in the first quarter of this year.

RTG posted a 66% slump in revenue to ZWL1,1 billion and a drop in occupancy by 21% for the 2020 fiscal year on the back of a protracted bite of the Covid-19 pandemic on the global tourism sector.

A study by the United Nations World Tourism Organisation (UNWTO) reveals that tourism in Africa plunged by 69% in the first eight months of 2020, against the comparative 2019 outturn. However, The UNWTO is confident that worldwide tourism will bounce back in the second half of the year, on the back of inoculation campaigns across the world.

Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.