Key message: A steady performance going back to the basics. A healthy well-funded development pipeline provides medium-term growth visibility. Book value remains understated with developments valued at cost.

  • Calgro released FY22 results. HEPS recovered to 106c after a loss in FY21 on a 50% increase in revenue.
  • The gross profit margin increased into the target range of 20-25% at 21.3%. The Development business is targeted to achieve +20% and the Memorial Parks 60%. Costs were maintained at close to FY21 levels despite the significant revenue increase. The Memorial Parks business now covers 72% of the Group administrative expenses.
  • 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 at 0.71 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.
  • On the current development pipeline earnings into FY23 should be able to grow HEPS by at least 30% for the next three years with minimal land and bulk infrastructure costs. Calgro continues to manage its pipeline conservatively to allow steady growth without stressing cash balances.
  • The Frankenwald property provides exciting long-term growth should it proceed. Calgro’s 50% portion of the initial development cost is approx. R250-300m. This would be required in FY24/25.
  • Proposed changes to government’s provision of free basic housing to financial support and land grants is positive for Calgro – and may result in government funding of land and bulk infrastructure again (as is the case potentially for Frankenwald). Calgro does not rely on government funding for its developments and assumes all costs need to be covered internally.
  • We increase our Target Price for Calgro to R8.63 (from R8.06). Calgro is trading at a significant discount to realisable NAV.

Download full report