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

  • Calgro released 1H FY24 results. HEPS increased 38% to 78.9c on a 14% increase in revenue. The gross profit margin remained in the target range of 20-25% at 22.2%. Cash resources increased 11% to R192m.
  • 949 units were completed, and 2118 units are under construction. Revenue per unit increased by 43% to R705k as more open market units were sold (construction in lower-income market units has been slowed as customers are under pressure). While units sold will be down in FY24 revenue should grow due to higher unit prices. 3398 opportunities are being serviced in the 2024 financial year. The pipeline comfortably allows steady unit sales in the next few years.
  • The development revenue pipeline is R15 billion (more than 22 000 opportunities), excluding the addition of Frankenwald (with an anticipated minimum 20 -30 000 opportunities) that will add onto this pipeline by March 2024 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 and infrastructure are secured for the project which reduces initial capital requirements.
  • The Memorial Parks business saw a strong recovery in cash receipts (+34%) with sales shifting top the lay-by offering. The GP margin remains over 40%.
  • Calgro remains in 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.
  • 6m share were repurchased in the period at an average price of R2.63 per share. A dividend is under consideration.
  • We adjust our Target Price for Calgro to R8.00, placing Calgro on a forward 4.4 times PE multiple. Calgro is trading at a significant discount to realisable NAV.

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