Key message: With Bankenveld adding to the development pipeline, Calgro has secured many years of steady organic growth.
- Calgro released 1H FY25 results. HEPS increased 29% to 101.14c on a 26% decline in revenue (construction activities were slowed down in 1H 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 29.7% (up from 22.2% in 1H23). A dividend will be considered at year-end under the current policy.
- 869 units were completed, and 1539 units are under construction (mostly to be completed by YE). 2609 fully serviced opportunities support the FY26 pipeline, and 2416 opportunities are currently being serviced. The development pipeline should allow for organic unit sales growth of 10% per annum for the forecast period. The development revenue pipeline is R32.6bn (37 154 opportunities with Bankenveld adding 20 000 to the total).
- The Bankenveld property provides exciting long-term growth. Land ownership (R100m cost) has now been transferred. Calgro’s 60% portion of the initial R250m development cost is approx. R150m. This would be required in FY25/26. 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.
- Existing developments have been largely funded with R476m invested in infrastructure over the past 18 months. Less than R100m is required to complete the existing development pipeline which will allow cash to be directed to Bankenveld.
- The Memorial Parks grew the gross profit margin to 57.1% (from 43.2%) with increased sales volumes and lay-by terms coming to an end (lay-by revenue is only booked at end of term). Market demand remains high. R52.1m of cash was generated which now covers group costs as planned.
- 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.
- We adjust our Target Price for Calgro to R10.20 (from R9.00), placing Calgro on a forward 5 times PE multiple. Calgro is trading at a significant discount to realisable NAV.