Our opinion on the current state of CLH

City Lodge Hotels operates approximately 62 hotels across six African countries, primarily targeting the business travel sector. The company's performance largely mirrors the economic conditions in South Africa. Historically well-managed, City Lodge is poised for growth as the economy rebounds. However, it faces challenges from reduced corporate travel and conferencing due to cost-cutting measures, persistent load-shedding issues, and a significant downturn from the COVID-19 pandemic, which has severely impacted the hotel industry.

On July 1, 2022, City Lodge announced the completion of its East African hotel operations sale, netting approximately R460 million. This move is part of its strategy to focus on recovery and growth in its core markets. For the six months ending December 31, 2023, the company reported an 18% increase in total revenue and a 10% rise in headline earnings per share (HEPS), with occupancies growing to 61% from 57% in the previous period, indicating a robust recovery.

The share's trajectory has seen significant fluctuations, peaking at R171 in February 2018 before plummeting to a low of 225c in November 2020, largely due to a rights issue that diluted shareholder value but provided essential capital for the company. Since then, the share price has shown signs of recovery, buoyed by improving occupancy rates and the easing of pandemic-related restrictions.

City Lodge's recovery is underpinned by its debt-free balance sheet, cash reserves, and access to substantial credit facilities, positioning it for steady growth post-pandemic. However, ongoing challenges like load-shedding remain a concern for the company and the broader South African economy. Investors eyeing City Lodge should consider its potential for recovery against the backdrop of economic and operational challenges.