City Lodge full year numbers.

City Lodge released their full year numbers to June 2011 on Friday afternoon. A bit of a strange time to be releasing results, but there you go, Friday afternoon, we were here at our desks. We knew that they were going to look a whole lot worse than the time before, that was telegraphed. It is a measure of the economy, the company caters for business travel. By absolute volumes, in rooms sold, the number is higher than this time last year, but because a whole lot of new rooms were built, occupancy levels have fallen sharply from 70 percent this time last year to 56 percent this time around.

The group now boasts 52 hotels, nine built in the run up to the World Cup with 6440 rooms across those hotels. 1380 built for the World Cup. Although I remember Clifford Ross saying that they would have ramped up anyhow, they normally do that at the bottom of the cycle. But this time it would have been different. OK, it is tough out there, loads of competition and room prices also under pressure. See the Grace in Rosebank is going to shut, if not permanently, then for a while still. The industry is having a bad time.

City Lodge talks about "...lower demand attributed to the continued subdued economic activity, the increased supply of rooms created by the industry in the lead-up to the World Cup, together with the adverse effects of the public holidays in the second half of the financial year, including an additional mid week holiday for the Local Government Elections on May 18."

Costs are also on the rise, the electricity price hike from the only provider is on the up. Yeah, you know who I am talking about. So what does it look like right now? "Trading conditions in July and the early part of August were mixed, but still remain challenging. If there is no further deterioration in occupancies and the new hotels continue to improve their performance, the group expects to show growth in normalised profit in the year ahead."

The numbers themselves are alright at current share price levels, 379 cents per share worth of earnings (294 cents undiluted HEPS), with their committed 60 percent payout ratio (1.7 times cover) you will get 228 cents for the full year, 104 cents this time around. I heard a comment from a portfolio manager last week, in which he said, they are a bricks and mortar company, he used the house example, with a value of their properties above the current market price. And at the moment he said, the house is standing empty. Well, I would say that people are paying for 60 percent of the rooms, but you are running at full cost, that is the other issue.

The directors give their estimated replacement cost and that currently stands at 3.6 billion ZAR. But as they point out, for accounting purposes current NAV stands at 19.58 ZAR a share. Versus a current share price of 60 ZAR. The market however values the business at 2.5 billion ZAR. Back in June of 2007 the market cap was actually at 3.4 billion ZAR. So it is fair to say that the share price has done nothing for the better part of four years. We have been early on this one however, this is a good property underpin. The business cycle will turn. But for now it is tough going.