Our opinion on the current state of CLH

City Lodge (CLH) runs a group of about 62 hotels in six African countries, with most of its business in South Africa. It is primarily aimed at the business traveller and hence its performance is mostly a function of the South African economy. Over the long-term, this is a company which is well-run and should grow as the economy recovers. Cost-cutting by most South African companies has resulted in less conferencing and business travel. On-going load-shedding is also negative, but the greatest impact has come from COVID-19 which has decimated the hotel industry and City Lodge in particular. On 1st July 2022, the company announced the finalisation of the sale of its East African hotels for a net R460m. In its results for the six months to 31st December 2022 the company reported total revenue up 94% and headline earnings per share (HEPS) of 17c compared with a loss of 6c in the previous period. The company said, "The improved occupancies and the return to normal trading conditions, has also contributed to the increase in operating costs. Salaries and wages increased by 43% to R230.3 million, as the prior year included 30% salary reductions". In a trading statement for the year to 30th June 2023 the company estimated that HEPS would be between 29,6c and 31,3c compared with a loss of 8,7c in the previous period. The company said, "Travel trends continue to rebound and the ebb and flow demand patterns have normalised to pre-Covid- 19 pandemic patterns". In an update on the 3 months to 30th September 2023 the company reported 62% occupancy and a 9% increase in room rates. The company said, "The Group remains in a net nil debt position, with a positive bank balance of R100 million as at 22 November 2023 and an outstanding loan balance of R70 million". Technically, the share peaked at R171 in February 2018. It fell to a new low of 225c on 4th November 2020 following the dilutive rights issue in August 2020, but has since rallied to 467c. The company conducted a rights issue of 566,4m shares at 212c each - which was massively below the share price of around R15 prior to the issue. This obviously diluted existing shareholders and led to a sharp drop in the share price, but it did give the company a much-needed injection of R1,2bn. We see this share as continuing to recover steadily now that the pandemic is behind us. Obviously, the loadshedding is an on-going problem for this company as it has been for the entire economy.