Ticking over

Yesterday City Lodge released their 6 month results and earlier in the month they announced that they bought the remaining share of their Kenyan operations.


Let's first start with their 6 month results and then move onto the Kenyan hotels. An overview of the company is that they have four hotel brands, ranging from Country Yard; which they describe as having its own distinct character to give guests an excellent experience in an elegant environment; to Road lodge with is a bare minimum hotel. The number of hotels is 55 with and another two in the pipeline, and 2 hotels in Kenya and 1 in Botswana.


Their revenue is up 9% compared to the previous period, and Headline earnings are up 14%. The impressive part of the business is their cost controls with, costs increasing 5.7% which is in line with inflation, but what shows to me their quality management is that despite electricity prices going up, their electricity cost has come down. A disappointment though was their occupancy rates, which ticked up slightly to 64% from 63% in the previous corresponding period. Going forward the management team expects this figure to improve with their forecast of improved demand towards the second half of the year. If that is the case, then City Lodge looks very attractive, because as occupancy rates increase, their profit per room increases. Their EBITDA currently sits at 42.1% which is not too shabby, and it will go higher with occupancy rates.


City Lodge are also looking at expending into the rest of Africa, where currently they have 3 hotels. The two in Kenya, they owned 50% of through a joint venture where they have now bought out their partners. A calculation that Byron did 6 months ago, using the full year results put the profit made in the rest of Africa per room at four times that of South Africa. The group say that they are looking at expanding further in East Africa and move onto West Africa, using the lessons learnt and the platform set in Kenya.


The potential to expand into the rest of Africa is exciting and as the economy picks up so should their occupancy rates. The main worry for me is the low growth that is expected for South Africa this year, which will make it very difficult for them to fill more rooms.