Checking in on City Lodge

I’m so happy that the Motus (JSE: MTH) video on YouTube has resonated with you. I’ve received loads of great feedback. I’ll be doing one deep dive like this a week, so be sure to subscribe to the channel if you enjoy this video.

Today’s mailer is focused on City Lodge (JSE: CLH), a company that I believe has a solid track record of surviving difficult things. I have a position in the stock and I’m tempted to add more. I’ve also covered a trio of strong trading statements that came out yesterday.

As usual on a Friday, the team from DealMakers is here with their deal activity summaries, something that is now even more useful after my pivot away from trying to cover every SENS announcement. There are also thought leadership pieces on holding company discounts and technical concepts related to the Competition Commission. Find what you like here.

To get your weekend off to a particularly sweet start, you can enjoy the latest episode of The Finance Ghost plugged in with Capitec. I spoke to Kosta Kappatos, member of the founding family of Gelato Mania and currently the Financial Director. This family has spent 20 years building a business that makes people happy every day. Get it on YouTube here, or on Apple Podcasts and Spotify.

Have a lovely Friday - we will see you on Sunday for Weekender!

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City Lodge’s results for the year ended June 2026 are a great example of how a macroeconomic mess can be a cold shower for investors. After group occupancy was up by 4.2 percentage points in the interim period, they ended up being only 2 percentage points higher for the full year.

Occupancy in the second half came under serious pressure as the global geopolitical environment deteriorated and oil prices shot up. The fourth quarter was particularly tough, with City Lodge noting pressure on weekend stays and leisure breaks. Despite this, occupancy rates were still slightly up year-on-year for that period.

I should mention at this point that I have a small position in City Lodge in my portfolio. I think the management team deserves a lot of credit for how they’ve navigated the past few years.

Although full-year occupancy wasn’t as exciting as it might have been, the average room rate increase of 7% worked wonders. This drove rooms revenue of 9%, accompanied by a delightful increase in food and beverage revenue of 14%.

After several years of focused attention from management, the food and beverage revenue is now 20.4% of total revenue. This is great for asset utilisation and margins, as it keeps the ground floor of the hotel busy even when the rooms aren’t as full as they might like. The gross profit margin in food and beverage increased from 61.7% to 62.2%.

The relationship between rooms revenue and the food and beverage offering varies considerably by type of hotel. It’s probably not a surprise that the flagship Courtyard Hotels have the highest penetration rate at 24.7% of total revenue, while the basic Road Lodges sit at just 17.2%.

But don’t make the mistake of thinking that this makes the Road Lodges an unattractive offering. The profitability metric that really counts is EBITDAR (not a typo – this is an industry standard in hospitality). Using Adjusted EBITDAR Margin, the Road Lodges do just fine:

Speaking of profitability, group operating costs were up by 9%, but operating costs per room sold increased by 6% - below the increase in the average room rate. This helped drive a 15% increase in group Adjusted EBITDAR.

But things aren’t great below that line, with a significant increase in depreciation after a period of refurbishments of hotels. There are also ongoing unrealised losses on foreign exchange due to the effect of a stronger rand on an intercompany loan in Mozambique. Profit for the year ended up 5% lower despite such strong numbers at the top of the income statement.

Thanks to repurchases of 6.4% of shares in issue, HEPS ended up being 4% higher.

Despite profits being under pressure, the group’s 20% increase in cash generated from operations helped them increase the total dividend for the year to 19 cents, a 26.7% increase on the prior year.

As you can see from this chart, the market doesn’t seem to care very much about the dividend increase. Instead, it’s all about the muted HEPS growth and the impact of the geopolitical environment:

But there’s no shortage of cash flow for the management team to work with. Maintenance capex of R229.7 million was easily covered by cash generated from operations of R656.9 million. Expansion capex was just R4.3 million, although this will tick up as a hotel expansion in Waterfall City kicks off in September 2026.

This cash profile is how the group managed to fund share repurchases of R152 million in addition to dividends. I am more than happy to see repurchases in a period of share price weakness.

In terms of recent trading, July suffered a wobbly with a 1 percentage point decrease in the occupancy rate year-on-year. August was better, up 3 percentage points. The first week or so of September was up 4 percentage points. With an average room rate increase of 10%, the group has noted that year-to-date revenue is up by 10.4%.

If anything, my temptation is to add to my position here.

Onwards to the trio of trading statements that I promised you.

Capitec’s (JSE: CPI) trading statement for the six months to August 2026 reflects expected growth in HEPS of between 18% and 20%. They now have more than 26 million personal banking clients. I’m also not surprised at all to see the company talking about substantial growth in Business Banking active clients.

The flywheels are spinning at Capitec, with a combination of client growth and additional activity per client.

More activity leads to higher impairment charges due to a growing book, with macroeconomic assumptions also playing a major role. Investors will wait for the detailed results on 30 September to help them understand the underlying credit quality.

Pan African Resources (JSE: PAN) expects HEPS to jump by between 195% and 205% for the year ended June 2026. This has been driven by the delightful combination of a 54.8% increase in the average USD gold price received, as well as a 38.3% increase in the amount of gold sold.

Thanks to the Tennant Mines contribution, production for FY27 is expected to grow by a further 7% at the midpoint of guidance.

Here’s a stat for you: over 3 years, the total return on Pan African is 831%! Over 5 years, it’s sitting at 1,011%.

Mustek’s (JSE: MST) trading statement for the year ended June 2026 highlights a jump in HEPS of between 176% and 186%. They attribute this to a reduction in finance costs and more favourable foreign exchange impacts, supported by cost control and the contribution from equity-accounted investments.

Do your own research and speak to your financial advisor. Nothing you read or listen to in Ghost Mail should be interpreted as financial advice. This is not a complete review of SENS and does not replace the need for you to refer to company announcements and reports yourself. Every effort is made to avoid errors in Ghost Bites and related podcasts, but I am only human.

Brent crude surged more than 5% yesterday, further fuelling inflation concerns as the Middle Eastern war shows no signs of abating. Traffic through the Strait of Hormuz remains disrupted, and Saudi Arabia, OPEC's largest producer, warned that output could fall to multi decade lows. Adding to the uncertainty, Trump suggested the conflict may not be resolved before the mid term elections.

Yields on 10 year US Treasury notes climbed to their highest level in nearly three years, while the dollar strengthened as the probability of a rate hike next week continues to grow.

Precious metals came under renewed pressure amid the stronger dollar, with silver falling more than 4% and gold also notably lower.

The rise in yields weighed on equity markets into the tail end of the week, with all three major US indices closing lower overnight and the tech sector leading the decline.

US futures are showing a marginal rebound this morning, though its sustainability is likely to be tested when US CPI inflation data is released this afternoon.

Asian equity markets are mostly lower, catching up with Wall Street's overnight move.

Locally, the rand has softened and we expect a softer open for the JSE All Share Index.

In addition to today's ECB meeting, US PPI inflation data is also on the economic calendar.

This update is provided by Shaun Murison, Senior Market Analyst at randswiss.com. Connect with him on LinkedIn here and follow him on X here.

Key Indicators: 

USD/ZAR R16.17/$ | US 10yr 4.95% | Gold $4,350/oz | Platinum $1,803/oz | Brent Crude $106.03