Key message: 2H should see revenue of approx. R1bn as units under construction are transferred. A strong pipeline (with Frankenwald doubling opportunities) with short to medium-term infrastructure costs mostly expensed should ensure sustainable earnings.

  • Calgro released 1H FY23 results. HEPS increased 33% to 57c on a 5% increase in revenue. The gross profit margin remained in the target range of 20-25% at 22%. The Development businesses are targeted to achieve +20% and the Memorial Parks 60%.
  • 1193 units were completed in 1H and 3965 units are under construction. Revenue in 2H should grow as at least half of the units currently under construction are completed/transferred. At an average R500k per unit the revenue in 2H should reach approx. R1bn (1H revenue R607m).
  • Cash declined due to investment in serviced opportunities (sectional title open market units in particular) to be completed in 2H – by YE cash from operations should be in line with after-tax profits. Revenue and profit for sectional title developments are only recognised on transfer.
  • The current pipeline comprises more than 24 000 opportunities (approximate revenue of R15.9bn) across 9 projects, excluding the Frankenwald project. Frankenwald should add a further 20 000 opportunities (approximate revenue of R15bn) to the pipeline in mid-2023 if Calgro exercises the land acquisition option. This will bring the total pipeline to in excess of 40 000 opportunities (R30bn).
  • 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. Frankenwald has lower infrastructure costs than normal for the first half of the development as the electrical substation is already installed and access roads already there. Power and water availability have been signed off by the relevant utilities. Design costs will be low as Calgro will use existing plans that can be standardised for large developments.
  • Calgro continues to manage its pipeline conservatively to allow steady growth without stressing cash balances. A strong pipeline (with Frankenwald doubling opportunities) with infrastructure costs mostly expensed should ensure sustainable earnings in the medium term.
  • We adjust our Target Price for Calgro to R8.36 (from R8.63). Calgro is trading at a significant discount to realisable NAV.

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