Trade Insights

Trade insight example

City Lodge Hotel Ltd

17 November 2014 

We last looked at City Lodge on the 19^th of August when the group announced that they were expanding their African footprint with possibilities of growth in East Africa. Last week, management stated that the East African development is progressing well with an agreement for a purchase of land in Nairobi, on which a 170 room City Lodge will be built, completed. Construction is expected to commence in the first quarter of 2015 and to be completed in mid-2016.

The group highlighted expansion plans which include Kampala, Uganda as well as investigations into acquiring suitable sites in Maputo, Mozambique; in Windhoek, Namibia; and Lusaka, Zambia.

The group released a decent set of results for the year ended June 2014, despite poor domestic conditions experienced and a slowdown in the second half of the reporting period. Revenue grew 9% to R1.1 billion, supported by both higher room rates charged and an increase in occupancy rates to 63% (2013: 62%). These results follow the decent set of results for the six months ended December 2013, with revenue increasing by 9% to R534 million due to increased occupancies and higher room rates. Normalized headline earnings ended 15% higher at R145 million.

City Lodge which contributed 56% to revenue saw revenue and EBITDAR increased by 8% to R598 million and R358 million respectively, resulting in a slightly contracted margin of 59.9% (2013: 60%). _{Source: JSE SENS} 

Technical analysis

We can see a symmetrical triangle pattern forming highlighted in the chart.  The continuation pattern can be seen between line A & B, with the breakout occurring in the direction of the existing trend which has been bullish. One should therefore wait for the breakout of the upper line (B.) reinforced by an increase in volumes.

To establish the target is always challenging as one measures the distance between the two lines A & B which could be inflated. The targeted move for a triangle is measured vertically at the start of the triangle which is from the first trough or peak to the opposite border of the triangle. The move is then projected vertically from the point of breakout to the target.

Some say that a symmetrical pattern is a reversal of the trend with buyers and sellers in a period of indecision and confusion. Therefore a break of the support line (A.) will guide to the aforementioned bullish indication to have failed.

Important to keep an eye on the moving averages, there was a clear “golden cross” towards the end of 2011 which was preceded by a rally; however we are currently in a state of indecision. - Leigh Riley, Premium Client Manager

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