City Lodge revised trading update, still good

Last year City Lodge came out with a trading update which suggested that normalised earnings per share for the six month period are expected to grow between 20% and 35% from the previous comparable period. That is great news but the estimation is wide. Yesterday we got some more clarity from the company.


"Further to the announcement released on the Stock Exchange News Service of the JSE Limited on 12 December 2012, shareholders are advised that normalised headline earnings per share, which excludes the costs and effects of the BEE deal, are anticipated to be between 27% and 32% higher than the previous year.


Diluted / undiluted headline and basic earnings per share for the six months ended 31 December 2012, which include the costs and effects of the BEE deal, are anticipated to be between 60% and 65% higher than the previous year."


Ignoring the effects of the BEE deal, Normalised headline earnings per share for the 6 month period to December 2012 came to 224c. Let's take the middle of the range 30% and we get half year earnings of 291c. Last year the second half was very similar to the first half earnings wise. Historically though, the first half which includes the December period is usually much better. However, as this trend shows, the company is growing fast and I think it would be safe to say that as the company continues to grow, we may see a similar thing happen this year whereby earnings are similar for the two halves.

To predict forward earnings I will double this figure of 291c. Like I explained above by doubling this figure I am assuming growth in the weaker period. That gives us 582c earnings for the year. The share price has done really well over the last 6 months having been as low as R75 in June last year to R108 today. This means the stock trades at 18.5 times current year earnings predictions.


This probably seems expensive but as we have pointed out many times about this stock, it has a property underpin which the market cap regularly trades at a discount to. Probably not at the moment, let's check it out. In last year's financial results released in June directors current estimated replacement value of their property was R3.8bn. According to the listed property index, property has grown 20% in the last 6 months. Add 20% to R3.8bn and we get R4.56bn. At the current share price the market cap of the company sits at R4.7bn.


So you can assume that movement in the share price is attributable to both earnings and the property index. Interestingly it also shows you why the property market has picked up, higher occupancy means higher yields, so earnings and asset value come hand in hand for the stock. We are very glad we were patient with this one and continue to use it as a good entry into the property market. At the same time it is also a nice indication that locals are travelling (as Famous Brands suggests) as well as foreign travellers visiting our beautiful country.