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City Lodge Hotel Group (CLH) will be the stock in focus: (Price at time of writing: R154.02 (23 February 2016))
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Background and overview of City Lodge Hotel Group
City Lodge Hotel Group owns well known South African lodging brands such as Road Lodge, Town Lodge, City Lodge , Courtyard Hotel and Fairview. The group owns more than 7000 rooms making it rank under the worlds 250 biggest hotel groups. They offer accommodation across South Africa, targeting various LSM groups. From cheap and affordable to luxury hotel rooms. They also have operations in Kenya and Botswana.
With a recovery in the tourism sector from 2014/2015 to 2015/2016 CLH should show the benefit of more tourists entering South Africa. Below we take a look at CLH's latest interm financial results for the period ending 31 December 2016
With a recovery in the tourism sector from 2014/2015 to 2015/2016 CLH should show the benefit of more tourists entering South Africa. Below we take a look at CLH's latest interm financial results for the period ending 31 December 2016
Scroll over or click on the funnel chart to get more details of CLH's latest financial results
Financial review:
The net profit margin achieved by City Lodge Hotel Group amounted to 21.03% (down from 21.9% with our last valuation onn CLH). However that margins achieved is still a very strong profit margin and something to be proud of. Average room occupancy rates fell by 3% from 69% in previous comparable reporting period to the current 66% in current reporting period. As mentioned earlier one would have expected better for CLH considering the improvement in tourist numbers. We even eluded to this in our previous analysis when we stated "Their next reporting period might reflect even higher average occupancy rates, as tourist numbers coming into South Africa is on the increase. See our Tourism page for more details."
Clearly this has not happend and CLH must be scratching their heads wondering how occupancy rates drop by 3% when tourist numbers are up. One possible reason would be the addition of new rooms to their stock levels. (238 rooms in total were added from a Newtown City Lodge and a Road lodge in Pietermaritzburg).
Clearly this has not happend and CLH must be scratching their heads wondering how occupancy rates drop by 3% when tourist numbers are up. One possible reason would be the addition of new rooms to their stock levels. (238 rooms in total were added from a Newtown City Lodge and a Road lodge in Pietermaritzburg).
The pie chart below shows the contribution of City Lodge different brands to their revenue and pre-tax profit earnings.
Interesting results from the pie charts above is the fact that the margins are very similar between all the different operating brands. They provide very similar percentage contributions to both the turnover and EBITDA for CLH. The bulk of the revenues and earnings comes from City Lodge, their best known brand in the group. City Lodge does have the largest number of rooms, with 17 hotels supplying just over 3000 rooms, 5 Courtyard Hotels supplying 381 suites, 12 Town Lodges supplying 1500 rooms and 22 Road Lodges supplying 2000 rooms.
Fully diluted headline earnings per share for the group came in at R4.55 for the half year, placing CLH on a PE ratio of around 17.03. Which is close well below the market average PE ratio of almost 23. Cash generated per share came in at R8.83 a share. And total cash on CLH's balance sheet amounted to R161million (or R4.47 a share in cash). With a weak exchange rate, tourists are finding South Africa a very attractive tourist destination and this bodes well for CLH's next couple of financial results.
The group has a consistent dividend policy, of paying 60% of normalised earnings out as a dividend, which in their latest results amounted to R2.72 a share. Assisting in the valuation of the company if methods such as dividend discount model is used. Below we take a look at a few more financial ratios for City Lodge Hotel Group.
Fully diluted headline earnings per share for the group came in at R4.55 for the half year, placing CLH on a PE ratio of around 17.03. Which is close well below the market average PE ratio of almost 23. Cash generated per share came in at R8.83 a share. And total cash on CLH's balance sheet amounted to R161million (or R4.47 a share in cash). With a weak exchange rate, tourists are finding South Africa a very attractive tourist destination and this bodes well for CLH's next couple of financial results.
The group has a consistent dividend policy, of paying 60% of normalised earnings out as a dividend, which in their latest results amounted to R2.72 a share. Assisting in the valuation of the company if methods such as dividend discount model is used. Below we take a look at a few more financial ratios for City Lodge Hotel Group.
A few financial ratios to mull over for City Lodge Hotel Group (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 1.49 (more than 2 shows high levels of financial leverage).
- Current Ratio: 0.48 (a measure of liquidity. Less than one signals possible trouble in paying off current liabilities). Strong ratio for CLH.
- Quick Ratio: 0.47 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt). This shows CLH would easily be able to cover short term liabilities with liquid assets.
- Return on Assets (ROA): 7.23%
- Return on Equity (ROE): 17.97%
- Net Profit Margin: 21.03%
- Dividend Yield: 3.58%
Valuation:
While the market CLH group operates in is tough, and can fluctuate significantly due to certain policies being implemented by the government of the day (read VISA requirement changes that negatively affects tourist numbers), they do have a significant foothold in the industry in South Africa, with well known brands and proven track records. We value CLH at between R169.60 and R170.20.
We therefore feel that CLH is close to being fairly priced (if not a bit undervalued). Should they dip below R150 long term investors should look to add, as improving inbound tourist numbers and more "staycations" of South African's will benefit CLH in the medium term.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We therefore feel that CLH is close to being fairly priced (if not a bit undervalued). Should they dip below R150 long term investors should look to add, as improving inbound tourist numbers and more "staycations" of South African's will benefit CLH in the medium term.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.