Key message: With the restructuring complete margins and profitability are improving, with a strong 2H expected.
- Calgro released 1H FY22 results. Revenue increased by 46% at an improved gross profit margin of 19.7% (17.5% developments, 60% memorial parks). Management expects the gross margin to improve further to 21-22% (developments achieving 20% GP). HEPS increased 263% to 42.8c.
- Calgro has finalised its restructuring program (close the construction division, exit all provinces except Gauteng and Western Cape, sale of non-core projects) and is now focusing on increased sales efforts and brand awareness.
- Debt levels reduced R20m with the proceeds of the sale of the Tanganani project. The net debt: equity ratio has fallen to 0.84:1 with a cash balance of R215m. Additional liquidity of R400m is available. Interest costs declined by 29% (all debt is floating).
- Administration costs declined by 23% due to the cost cutting measures and closure of the construction business. These costs will increase slightly as new senior people are required as the business grows.
- Residential Property Development: Revenue up 45% and GP margin 17.5%. 5091 opportunities are currently under construction. We expect revenue to grow strongly in 2H as the delayed revenue accounting treatment of some of the current projects is realised. A GP margin of 20% is achievable as future infrastructure costs are expected to be minimal over the next 18-36 months (these are expensed and not capitalised).
- Memorial Parks: cash receipts increased by 53%. A new entry level product at Nasrec has increased Gauteng market share and a partnership with Nedbank to provide credit for grave sites has been concluded.
- 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%.
- To value Calgro we place the property portfolio on a 40% discount to the market-adjusted NAV.
- We increase our Target Price for Calgro to R8.06 (from R7.06). Calgro is trading at a significant discount to realisable NAV.