City Lodge H1 results well received

Yesterday afternoon we received full year results from City Lodge. It is always exciting to get results from a recommended stock, it reminds you whether you are on the right track or not. In this case I certainly think we are. And here is why.


Normalised headline earnings per share increased 31%. It says normalised because it excludes a BEE deal done last year. We knew this though because we received a trading update a couple of weeks back. The exact number came in at 578c with 351c of that being paid out as a dividend. The stock currently trades at R123.80 which puts it on a historic multiple of 21 and a dividend yield before tax of 2.8%.


This is also a property business however and management have estimated the replacement value of the hotels they own at R4bn. At the current share price the market cap of the stock is R5.3bn. I remember at one stage the replacement value was well above the market cap. I guess as times have improved and the stock has re-rated. The intangible assets such as the City Lodge branding and potential to raise occupancy rates has increased in value.


Talking about occupancies, the rate came in at 62%. This is up from 59% for the last financial year but down from the 63% recorded in the first half. The first half does of course include the festive season so the second half is historically worse. I was expecting a slightly faster acceleration but I guess we have to be patient. The all time high is 85% so we expect the momentum to only go upwards from here unless something drastic happens in the global economy. As we have said before, City Lodge did a massive expansion a couple of years back, when these occupancies increase, revenues will fly.

What got us really excited here in the office however was the progress seen from their joint venture in Kenya. Remember they bought a 50% stake in a hotel group there called Fairview Hotel Limited which owns 2 hotels in Nairobi? That business contributed R13.6 million profits after tax. Sasha and I did a simple calculation looking at the overall profits per room. For the whole group the company makes R177 per room per day. The Kenyan business makes R730 per room per day. I think that gives you a great indication of the potential margins north of our borders where there is a huge lack of affordable hotels. The 104 room Town Lodge was opened up in Gaborone in mid-May, it will be very interesting to see how that does.


This company has huge growth potential in terms of revenue growth and margin expansion. The property underpin proved integral in the movement of the share price as the property market grew. That was also very encouraging as an out of the box type property investment. We continue to add at these levels.