City Lodge Ho­tels:

Finweek English Edition - - INVESTMENT -

Rest as­sured, a break­out could be un­der­way

The surge in the hos­pi­tal­ity in­dus­try be­gan in 2004, af­ter news that South Africa would be host­ing the 2010 FIFA World Cup. By 2007 City Lodge’s share price had bal­looned by al­most 170%. The world was com­ing to town, and ac­com­mo­da­tion was needed. How­ever, in 2011 the in­dus­try faced de­clin­ing oc­cu­pancy rates, which im­pacted greatly on prof­its. In fact, City Lodge Ho­tels topped out dur­ing 2009 and 2010, and sub­se­quently lost about 34% of its value.

Af­ter the World Cup times were tough for ho­tels, which suf­fered from both a re­duc­tion in over­seas vis­i­tors and do­mes­tic travel. The added pres­sures of the global re­ces­sion, to­gether with higher costs from in­creases in elec­tric­ity prices, ris­ing labour costs and in­creased tar­iffs for mu­nic­i­pal ser­vices, all had a neg­a­tive im­pact on travel and tourism. In 2010, City Lodge, which op­er­ates ho­tel brands like Court­yard, posted a 12% to 17% de­cline in full-year, nor­malised head­line earn­ings per share. City Lodge, how­ever, fared bet­ter than its ri­vals due to its rea­son­able ac­com­mo­da­tion to value-con­scious trav­ellers.

By 2011, City Lodge man­aged to de­clare a 135c/share div­i­dend and re­ported a 10% rise in nor­malised head­line earn­ings. In ad­di­tion, it an­nounced its f irst move into the rest of Africa through a lease and de­vel­op­ment agree­ment in Gaborone, the cap­i­tal of Bo- tswana. In­vestors warmed up to its plans to ex­pand into the rest of the con­ti­nent, which ap­pre­ci­ated the share price to new highs. In 2012, City Lodge ac­quired a 50% stake in Fairview, which owned two ho­tels in Nairobi. It aimed to ex­pand fur­ther to East Africa, and iden­ti­fied Kenya, Tan­za­nia, Rwanda and Uganda as po­ten­tial sites. Last year, the JSElisted City Lodge Ho­tels an­nounced that its plans to de­velop its 150-room City Lodge Wa­ter­fall City had be­gun, with the ho­tel sched­uled to open to­wards the end of this year.

POS­SI­BLE OUT­COME: City Lodge re­traced af­ter peak­ing at 14 300c/share but has man­aged to hold f irmly at 11 200c/share. A fall­ing-wedge, which is a bullish con­tin­u­a­tion pat­tern, is in the mak­ing and upside above 12 400c/share would con­firm a pos­i­tive break­out, and present a buy­ing op­por­tu­nity − a move that should trig­ger an ad­vance to the 19 300c/share ob­jec­tive level of the pat­tern in the medium term. AL­TER­NA­TIVE SCE­NARIO: A lack of in­vestor con­fi­dence would be sig­nalled be­low 10 100c/share − thereby trig­ger­ing a sell sig­nal and sup­port at 7 400c/share could then be tested.

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