Key message: Earnings growth of approx. 50% in 2H shows the ongoing recovery of the operating businesses, coupled with a strengthening of the balance sheet.
- Calgro released a Trading Statement for FY22.
- HEPS is expected to be between 105c and 106.4c – compared to the loss of 15c in FY21. This implies earnings growth of approx. 50% in 2H.
- The gross margin has returned to the target range of 20-25%. Within this the Development business is targeted to achieve +20% and the Memorial Parks 60%.
- 2686 residential units were completed through the year with 4583 units under construction. The income statement treatment of the developments is conservative – revenue is recorded on transfer and therefore profit is booked late in the development cycle. Revenue growth into FY23 should be boosted by the development pipeline already under construction.
- Debt reduction continues with net debt to equity below the 0.75 target. The cash balance at YE was R191m. Calgro has recovered from a period of balance sheet pressure and the simplification of the business model has allowed the business to stabilise and start to grow again.
- FY22 result will be released on Monday 16 May. On the forecast HEPS of 105c Calgro would be trading on a PE of 3.8 times – good value for a business that has restored its core competencies and operating in a high growth segment of the residential market.
- On the current development pipeline earnings into FY23 should be able to grow HEPS by at least 50% – this is not yet discounted into the current share price.
- We maintain our Target Price for Calgro to R8.06 and will update our valuation after the results. Calgro is trading at a significant discount to realisable NAV.