City Lodge Hotel Group (CLH) is an SA icon. When it was launched by the late Hans Enderle in 1985 it was a disruptive force in the local hotel industry and spawned many imitators but few, if any, survive in their original forms.
The concept was simple: provide a quality room at an affordable price but without all the usual bells and whistles that accompanied hospitality in those days. And make the target market corporate travellers rather than leisure guests. Keep the food & beverage (F&B) offering to a minimum, in line with the old hoteliers’ adage that 80% of the income and 20% of the hassles come from rooms, while 80% of the hassles come from F&B and associated activities while only 20% of the income arises from this source.
Over the years this basic formula has been tweaked, most notably since Covid, with the disciplined increase in F&B percentage, but this has been achieved without compromising profitability. The ratio of corporate to leisure guests has also moved out somewhat, but corporates still account for the bulk of the business by far.
CLH is mainly a local operation, with only a few small ventures outside SA. Thus its fortunes are highly dependent on the buoyancy of the SA economy. And this appears to be the main reason the group has exhibited a kind of stop/start situation with respect to earnings during the past couple of years.
As the country emerged from Covid, CLH and other hospitality companies were widely mooted as recovery stocks, and to be fair the initial recovery was profound. However, it appears to have got stuck amid ongoing political and economic tension in SA and that is reflected in the latest results for the year to June 30.
Group occupancy fell by two percentage points from 58%. The first half was down four points and the second half trend was slightly better, being up two points, despite the uncertainty around government of national unity (GNU) disagreements relating to the passing of the budget and the unease caused by the Trump tariffs.
Revenue rose 3% to R2bn and the group managed to achieve a 7% average room rate increase for the year. Segmentally, the upmarket Courtyard chain was the best performer, with 9% revenue growth, while Town Lodge, which has ongoing extensive refurbishments in many properties, saw zero growth in revenue.
Room revenue rose 2% to R1.59bn, while F&B revenue grew 8% to R393.2bn and contributed 20% of total revenue, up from 19% in 2024.
Diluted headline earnings per share (HEPS) were virtually static at 33.1c, though adjusted diluted HEPS rose 9% to 34.6c. The total dividend for the year was maintained at 15c per share. There is no debt on the balance sheet and 7.6-million shares were repurchased and cancelled during the year at an average price of 392c per share.
The new financial year has started off strongly for CLH. In July average occupancies were at 60%, compared with 56% a year earlier, and that trend largely continued in August. September has been even stronger. F&B rose between 14% and 16% year on year in July and August.
In November, Johannesburg will host the G20 meeting at Nasrec. All hotels in the Joburg/Rosebank/Sandton area will be in high demand among delegates, and CLH should do well out of it. Corporate travel continues to gradually improve and CLH’s excellent BEE credentials hold it in particularly good stead for winning and retaining government business.
CLH remains a quality business with excellent management and an enviable institutional investor following. At a share price of 398c, the historical price-to-earnings ratio is 11 times and the dividend yield 3.8%, which is not demanding.
• Gilmour is an investment analyst.
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