City Lodge is down 15% year to date, which means it has severely underperformed a JSE Top 40 ETF that would’ve delivered more than 36% over that period.
That’s not a great benchmark, as the Top 40 is severely skewed by gold, platinum group metals and international giants.
City Lodge sits firmly in the South Africa Inc bucket where many companies have been struggling this year. But even so, this hotel group is well off the pace.
The shares are trading at 420c as at time of writing. The 52-week low is 353c and the 52-week high is 520c, so that’s 16% down to the low and 24% up to the high. This means City Lodge is somewhat in no-man’s land at the moment. Recent momentum is encouraging though, with the share price up 5.5% over 30 days.
There are good reasons for this positive momentum. There are also compelling arguments to be made that the 52-week high (and beyond) is a believable outcome here. It certainly doesn’t hurt the bull case that City Lodge has repurchased more than 7% of shares in issue through a share repurchase programme that has been running since March. It allocated R170m to these repurchases at an average price of 399c a share (below the current price). This was great timing that speaks to the maturity of the management team in terms of capital allocation.
Speaking of capital allocation, it seems gaming group Tsogo Sun has better uses for its capital than sitting with a random stake in City Lodge. Tsogo Sun previously acquired about 10% in City Lodge through purchases in 2023. City Lodge recently announced that Tsogo’s stake had dropped to 3%, and while the timing may sound bearish for City Lodge, recent trading performance at City Lodge suggests this has more to do with Tsogo Sun’s own corporate priorities than a negative view on City Lodge.
You have to know where to find that performance though, as results for the year ended June 2025 are not inspiring. Revenue growth was just 2% in the first half, while a modest acceleration in the second half took full-year growth to 3%.
There is minimal seasonality in revenue at City Lodge, which tells you a lot about the underlying business model. Rather than relying on foreign tourists when the sun is shining in December, City Lodge has built a business focused on local travel for business and leisure purposes.
It clearly wasn’t an easy period, with price increases mitigating the decrease in occupancy rates
The improved revenue in the second half might seem insignificant, but it was good enough to drive a much better outcome for adjusted headline earnings than what we saw at the halfway mark. Interim adjusted headline earnings were down 2%, whereas the full-year numbers reflect growth of 9%. Despite this, City Lodge took a cautious approach with the dividend, keeping it flat for both the interim and full-year periods.
It clearly wasn’t an easy period, with price increases mitigating the decrease in occupancy rates. The other positive factor is the food and beverages offering, a key focus of management, which has grown to 20% of group revenue. This is a clever way to improve the return on assets, as City Lodge has the space anyway and may as well use it to drive different sources of revenue.
Another highlight of the business is the strength of the balance sheet. The group was in a debt-free position as at June 30 2025, giving it the flexibility to execute the extensive share buybacks that will help drive headline earnings growth in future.
Now for the strongest argument in the bull case: the momentum in July and August. Things are looking much better, with occupancy rates up 400 basis points and a very juicy mid-teens growth rate in food and beverage revenue. This performance would no doubt have contributed to management’s confidence to accelerate share buybacks after year-end.
Given the extent of operating leverage in this model with the vast footprint of fixed assets, this recent uplift should drive much stronger profits, with the caveat that we don’t know what the room pricing movement has been.
Cost pressures are always a worry, but the group did a terrific job of containing costs to an increase of just 4% in the year ended June. If it has achieved this occupancy uplift with even flat pricing, things are looking good.
At the current traded price, the group is trading on a trailing p:e of 12. The forward multiple is what really counts though, with a decent chance of a strong upcoming interim period thanks to recent growth and the significant reduction in the number of shares outstanding.
It’s not a slam dunk (is anything?) but the upside potential vs downside risk looks interesting at these levels.
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