City Lodge interim results solid

Yesterday City Lodge released their interim report for the six months ended 31 December 2012. I did this fairly detailed report titled City Lodge revised trading update, still good a few weeks ago when the trading update was released. It focused mainly on the property underpin and how the value increase has perked up the market cap and of course the yield has increased earnings. It also covers the fundamental analysis of the numbers.


This report gives us some more detail on the numbers as well as the actual hotel business.

"Group occupancies for the six months to 31 December 2012 increased to 63% from 60% in the previous interim reporting period. Revenue for the period increased by 11% to R492,1 million, mainly as a result of improved occupancies and the resultant increase in the number of rooms sold. Achieved room rates increased in line with inflation."


This resulted in normalised headline earnings per share to increase 30% (there was a BEE transaction last year which lowered the base) which was at the top of the range considering the update. This equated to 290.4c a share, 60% (176c) of that being paid out as a dividend.


One of the best ways to get some extra info from a results release is to watch the interview with the CEO. Here is Clifford Ross on CNBC yesterday. He makes some interesting observations on cost cuts, especially with regards to electricity. See they are replacing 40 000 light bulbs to the energy saving type. I wonder if that contract is done with Ellies? They also make sure they heat their water and do the washing at low peak times. You see there are many innovative areas they can work on and all the better for the country.

That said part of their revenue increase was due to the occupancy increase while the other part was due to inflation related price increases. 63% is still far from their all time high of 83% and also below the world average 65%. This is probably because of the massive hotel boom before the 2010 world cup. Otherwise I would expect the top low cost hotel in a developing market like South Africa would comfortably beat the global average. And I would expect the City Lodge number to certainly increase as the South African market normalises.


It was encouraging to see that their Joint Venture in Kenya has beaten their expectations, bringing in profit after tax of R7.1million and the 104 room hotel in Gabarone has been built, just awaiting regulatory approvals to start business. In the Outlook segment they say that the trend for 2013 has continued with occupancies growing nicely. They have also benefited from the African cup of Nations.


I saw no mention of management's replacement value of their property. They usually mention that in their full year numbers. All in all a good set of numbers, we are happy to be adding at these levels. South Africa is the gateway to Africa and City Lodge are going to provide the beds for those visitors.