Company Data
| Last traded |
R81.57 |
| Change |
R-0.33 |
| % Change |
-0.40% |
| Cumulative volume |
16,174 |
| Market cap |
R3.51bn |
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Johannesburg - A steep price to earnings multiple has not deterred some asset managers from taking an interest in City Lodge[JSE:CLH], but others cautioned the hotel group's prospects - with the 2010 Fifa World Cup looming - may be overhyped.
Asset management firm Vestact added City Lodge to its core portfolio on Thursday. Vestact's Paul Theron told clients he was upbeat about City Lodge's prospects, saying "We believe that the 2010 and 2011 financial results will show steady improvement".
City Lodge has expanded its capacity ahead of the soccer showpiece to 53 hotels and 6 629 rooms.
Shareholders who consider investing in City Lodge should keep the group's recent strong price run - despite tough economic conditions weighing on the leisure industry - in mind.
Stocks rose from 5 900 cents per share in March 2009 to a high of 8 190c. The price has fallen back in the last few days to about 7 800c per share - trading on a historical price-to-earnings multiple of around 21 times.
Theron said: "In our experience, the best time to buy a stock with a great reputation is when its current earnings are a bit patchy, but the forward earnings prospects are looking good. In this case, it's clear that the major hotel growth plan is the earnings catalyst."
City Lodge is also tipped by stockbrokerage firm Barnard Jacobs Mellet [JSE:BJM] (BJM). "The share has compelling growth prospects and is likely to remain an attractive dividend payer with a healthy balance sheet," BJM said in a note to clients. " A forward dividend yield of 5.8% remains attractive and we retain an accumulate recommendation at current level."
One person who is less upbeat about City Lodges' prospects is Warwick Lucas at brokerage Imara SP Reid. Lucas recently advised clients the share was fully valued at its present levels.
Lucas pointed out that while the World Cup may boost City Lodge's earnings in the near term, it is a once-off event. The group will require a sustained effort to ensure beds are full and earnings grow.
- Fin24.com