City Lodge shares drop 6% after interim earnings halve Glencore boosts its activities in the DRC

JSE-LISTED City Lodge’s share price slid by more than 6 percent after the hotel group flagged that its interim earnings would halve, hurt by weaker trading conditions and the adoption of IFRS 16 leases.

City Lodge, which has operations in South Africa, Namibia, Kenya, Tanzania and Botswana, said yesterday that for the six months to end December it expected its normalised headline earnings to decline by between 49 and 54 percent to between R75.1 million and R83.3m, from R163.3m compared to last year.

The group’s normalised diluted headline earnings per share (Eps) was expected to decline by between 172.6 cents a share and 191.3c, or 49 percent and 54 percent, from 375.1c.

The group said the normalised headline earnings and normalised diluted headline Eps consisted of headline earnings adjusted for the effects of transactions relating to black economic empowerment and non-recurring.

Its basic earnings per share of between 117.5c and 136.4c would decrease by between 64 and 69 percent compared to the basic earnings per share of 378.9c. Headline earnings per share (Heps) was expected to decline by between 64 and 69 percent from last year’s Heps of 378.9c.

“On a comparable basis, excluding the effects of implementing IFRS 16 and unrealised exchange gains or losses, normalised headline earnings would be between R119.2m to R111m, being a decrease of between 27 and 32 percent,” the group said.

In South Africa, its primary market,

City Lodge said normalised profit after tax, excluding IFRS 16, decreased by between 12 and 17 percent.

City Lodge last year flagged that its occupancies had slid, hurt by low levels of business and consumer confidence, high unemployment, uncertainty around power utility Eskom’s sustainability and land expropriation.

Despite this, the group forged ahead with its expansion strategy by opening 154-room Town Lodge uMhlanga, its 55th hotel in South Africa to go with another expansion in Mozambique, a 148-room City Lodge Hotel Maputo.

City Lodge will release its results on February 20.

The share fell to R67 a share in the morning, after the release of the trading update, before closing the day at R67.71.

GLENCORE said its 2019 copper output fell 6 percent and battery mineral cobalt rose 10 percent as it boosted production at its Katanga mine in the Democratic Republic of Congo (DRC), offsetting the impact of the early closure of another operation.

The news drove Glencore’s shares 5 percent higher by 10am, outperforming London peers, as analysts took the view Glencore was overcoming operational problems in Africa.

The miner shut its Mutanda mine in the DRC ahead of schedule in November in response to falling cobalt prices and rising operational costs and taxes.

Glencore, whose chief executive Ivan Glasenberg has said he may be replaced this year, has been battling multiple issues, including political and operational issues in the DRC and Zambia, and investigations by the US Department of Justice and Britain’s Serious Fraud Office.

The problems have weighed on Glencore’s shares, which shed 19 percent last year.

Analysts now predict a rally, saying the company is too cheap and operational problems have been tackled.

“Glencore continues to screen as a strong value proposition,” Tyler Broda of RBC Capital Markets said in a note.

Glencore yesterday said its 2019 copper output reached 1.37 million tons, while cobalt climbed to 42 200 tons.

In the fourth quarter, copper output fell to 355 400 tons and cobalt production dropped to 11 900 tons.

It should benefit from the rise of electric vehicle sales, which use high volumes of copper and cobalt.

But the company, which is the world’s biggest shipper of export quality coal, is under mounting pressure from investors concerned about the need to phase out fossil fuel to lower climate-warming emissions.

Production of zinc, ferrochrome and nickel fell slightly, but the company kept its full-year 2020 outlook unchanged.

Also yesterday, Glencore appointed former China Molybdenum International chief executive Kalidas Madhavpeddi to its board.

China Moly, like Glencore, operates in the DRC.