City Lodge Hotel Group (CLHG) finally laid its demons to rest with an excellent set of results to June 2023.
Bedevilled by the combined effects of an almost complete shutdown of its hotels during the Covid-19 pandemic, a highly dilutive rights issue and the continuing effect of load-shedding, CLHG has adapted its business model to compete successfully in the new normal of the post-Covid world.
The SA hospitality industry is among the best and the most price-competitive in the world, in my opinion. Standards are exceptionally high and within that, CLHG stands out as setting the benchmark when it comes to sustained good value. Its blueprint in 1985 under founder the late Hans Enderle was the American Hampton Inn concept, owned in those days by Holiday Inn. It offered a decent-sized room with no frills at a competitive price.
Since then, the group has been expanded to include the upmarket Courtyard chain as well as the Town Lodge and Road Lodge chains. Though the main focus has always been the corporate traveller, that has changed somewhat with the expanded food and beverage offering now available throughout the group.
There are many metrics that can be used in analysing a hotel operation but the three most commonly used are average occupancy, average room rate (arr) and revenue per available room (revpar). All of these metrics are moving upwards for CLHG. For the year to end-June 2023, average group occupancy was 18 percentage points higher than in 2022 at 56%.
Group revenue was 55% higher at R1.7bn and earnings before interest, depreciation, amortisation and rent (ebitdar) were 83% higher at R556m. Headline earnings per share (heps) rose 452% from -8.6c to 30.3c and a final dividend of 8c per share was declared, making a total of 13c for the year.
Arr improved 12% in 2022, with more improvements expected in future. With no increase in the number of available rooms between 2022 and 2023. Revpar rose 53% to R522.80. Food and beverage revenue increased 79% to R299m and now constitutes 17% of group revenue. The balance sheet is in much better shape as well, with debt funding at year end being R300m compared with R600m previously. A further R200m of debt was repaid in July. There was a cash balance of R328.3m compared with an overdraft of R59.3m the previous year. Cash generated by operations was R539.5m compared with R265.8m in 2022. The net asset value per share at year end was 196c and the net insured replacement asset value per share was 1 348c.
The outlook for financial 2024 and beyond is encouraging. While a repeat of the highly robust growth experienced in 2023 is unlikely, the year has started off well in terms of average occupancies. In July and August, average occupancy levels throughout the group were 61% and in the first week of September they were 64%. The inbound international tourist season begins in October and lasts all the way through March and April and CLHG is poised to take advantage of a strong influx of foreign visitors. And corporate travel is slowly improving as well.
At the current share price of 453c, the historic PE ratio of CLHG is 14.95x and the dividend yield is 2.87%. This may not appear particularly cheap but it is important to take a longer-term view with CLHG. This is a quality company whose deep-down resilience has been amply demonstrated in its ability not only to survive but to flourish in a remarkably short period of time. It is in a far better position today to cope with downturns (and upturns) in the economy.
Even so, bottom-line earnings are still far short of what they were in 2019. But current occupancy levels are similar to what they were in 2019 and food and beverage revenue is much greater than it was back then. So it seems reasonable to assume that CLHG’s earnings will surpass its 2019 earnings this current financial year.
• Gilmour is an investment analyst.
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