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Yesterday, just after the close we received a very good looking trading update from another one of our recommended stocks, City Lodge.
".... headline earnings for the year ended 30 June 2013, which include the costs and effects of the BEE deal, are anticipated to be between 42% and 47% higher than the previous year, whilst diluted headline and basic earnings per share are anticipated to be between 40% and 45% higher than the previous year.
Normalised headline earnings, which excludes the costs and effects of the BEE deal, are however anticipated to be between 28% and 33% higher than the previous year, whilst normalised diluted headline earnings per share are anticipated to be between 27% and 32% higher than the previous year."
Let's look at these numbers in more detail. For the first half of the year the company managed to grow normalised headline earnings per share by 31% to 295c. For comparative reasons it is best to look at the number which excludes the BEE deal. So a range of 28% to 33% looks to be in line with the first half. Last year the company made normalised diluted headline earnings per share of 442.8c. Add the middle of the range 31% and we should expect around R5.80 for the year.
The stock is trading at R128 which puts it on a multiple of 22. That may seem expensive but there are a lot of factors here. Firstly there is that generous dividend they usually pay. Last year the company had a dividend cover of 1.7 times. If they keep it that way we should expect R3.40. That is a yield of 2.7%. Not as good as it used to be but that is because the share price has run. The other prevailing factor is the property underpin.
According to my latest calculations, using the listed property index as a benchmark, their directors estimated replacement value of the hotels they own should be around R4.56bn. The current market cap is R5.4bn.
That calculation of mine was done in January. When the full year results come out later this month we should get an updated version of the estimation which will give us some clarity. Occupancies were at 63% for the half year, I expect this to have grown. All in all a good update, we will do a full analysis when the results come out on the 14 of August.