Key message: Relatively steady state earnings are expected for future years off a well-developed pipeline.

  • Calgro released FY23 results. HEPS increased 43% to 153c on a 15% increase in revenue. The gross profit margin remained in the target range of 20-25% at 23.5%.
  • 3186 units were completed, and 2719 units are under construction (these alone should match FY23 revenue due to higher unit value). Just over 3100 opportunities are being serviced in the 2024 financial year. The pipeline comfortably allows steady unit sales in the next few years.
  • Cash resources have decreased slightly to R173m due to investments made in infrastructure and top structure construction. The cash investment cycle and income cycle are starting to align – with sales spread more evenly over the year.
  • The development revenue pipeline is R15.9 billion (more than 22 000 opportunities), excluding the addition of Frankenwald (with an anticipated minimum 20 000 opportunities) that will add onto this 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). Efficient design layouts added more than 1 600 units to the pipeline at no additional capital cost.
  • 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. Electricity connections are secured.
  • The Memorial Parks business experienced a slow-down post-Covid, and customer affordability is an issue. New lay-by products and marketing have resulted in a turnaround.
  • Calgro has managed to get into a strong development position, with cash investment in top structures being converted into unit sales at a steady pace through the year. Infrastructure and land have largely been fully funded.
  • Share buybacks of 13% of issued capital have occurred post-YE at an average price of 248c. Further buybacks may occur (up to approved limit of 20%). A dividend may be considered at in FY24.
  • We adjust our Target Price for Calgro to R7.80, placing Calgro on a forward 4.4 times PE multiple. Calgro is trading at a significant discount to realisable NAV.

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