Key message: A significant recovery in 2H as the business stabilises and development activities resume. A strong pipeline of units under construction supports revenue growth into FY22.

  • Calgro released FY21 results. The 2H FY21 result showed a significant recovery over 1H which suffered a COVID-related three-month construction stoppage (gross profit R76.7m vs R31,3m and gross profit margin 15.9% vs 7.9%).
  • The simplification of the business model is essentially complete:
    • close the construction division (cost of R12.9m)
    • exit all provinces except Gauteng and Western Cape
    • sale of non-core projects
  • Debt levels at R958m reduced from R1 069m, with debt maturities spread across six years. All debt is floating.
  • Calgro has 4 654 units under construction (up from 2 393 in FY20) and 32 590 available opportunities. Little long-term investment is required to capitalise on this pipeline – a period of “harvesting” can occur over the next few years without significant impact on longer-term growth prospects.
  • Memorial Parks are contributing meaningfully and the burial opportunity pipeline is 59 366 (1 542 completed in FY21). Improved marketing is driving strong growth in demand (excluding any Covid impact).
  • Calgro is traditionally very conservative on accounting for book value – everything is on the balance sheet at cost and this does undervalue the property portfolio by approx. 40%.
  • Land invasions remain a risk, but risk mitigation measures have been effective in recent land invasion attempts.
  • To value Calgro we place the property portfolio on a 40% discount to the market-adjusted NAV (this equates to a 12% discount to the accounting book value of R1.34bn).
  • Our Target Price for Calgro is R7.06. Calgro is trading at a significant discount to realisable NAV.

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