Key message: Relatively steady state earnings are expected for future years off a well-developed pipeline.
- Calgro released FY24 results. HEPS increased 38% to 189.9c on a 16% decline in revenue (construction activities were slowed down in 2H as a conservative measure to reduce construction risk over the election period). The gross profit margin exceeded in the target range of 20-25% at 27.3%. Cash resources decreased to R122m (from R173m) with cash invested in near completed units.
- 1794 units were completed, and 1748 units are under construction. 2825 fully serviced opportunities support the FY25 pipeline (1100 commencing construction in 1H FY25) and 2970 opportunities are currently being serviced. An extra 2182 opportunities have been added to the pipeline through additional property and more efficient designs.
- The development revenue pipeline is R16.3bn (more than 23 000 opportunities), excluding the addition of the recently acquired Bankenveld (with an anticipated minimum 20 – 30 000 opportunities with an approx. R18bn revenue pipeline). This will bring the total pipeline to in excess of 40 000 opportunities (+R40bn).
- The Bankenveld property provides exciting long-term growth. Calgro’s 60% portion of the initial R250m development cost is approx. R150m. This would be required in FY24/25. Electricity and infrastructure are secured for the project which reduces initial capital requirements and reduces the land and servicing cost per unit – this implies higher margin sales. First sales are expected in FY27.
- The Memorial Parks grew the gross profit margin to 45.7% (from 36.1%) as sales volumes achieve critical mass and a focus on direct sales to consumers gained traction. Market demand remains high. A new park was added in Rustenberg.
- Calgro now has the luxury of a development pipeline that supports activities for at least 15 years. There are no further significant capital requirements for the existing pipeline and the Bankenveld infrastructure costs should be covered through internal cashflows.
- 9m shares were repurchased in the period at an average price of R2.92 per share (R73m). A maiden dividend was declared – indicating the maturity of the pipeline and low future capital investment required. We adjust our Target Price for Calgro to R9.00 (from R8.00), placing Calgro on a forward 4.4 times PE multiple. Calgro is trading at a significant discount to realisable NAV.