Key message: Trading out of non-core developments should release cash in the medium-term.
- Calgro released H1 FY27 results. HEPS declined 5% to 79c on a 1.2% increase in revenue, but this includes a R12.7m non-cash IFRS 9 modification loss. Excluding this, HEPS would have risen about 7% to approx. 89c. Group gross margin was 29.5%. This remains above the 20-25% target range.
- Key takeaways from the results: Revenue has moved to core projects. Fleurhof, South Hills and Belhar produced 86% of residential revenue (H1 FY26: 47%), while non-core Scottsdene, Jabulani and mid-to-high-end revenue fell to R57m from R202m. Residential gross margin held at 26.6%.
- Bankenveld Phase 1 bulk and link infrastructure is due for completion in Q1 of FY28, after which internal infrastructure starts. The Johannesburg council has recommended approval of the USDG agreement which paves the way for the recovery of Phase 1 infrastructure costs.
- Cash utilised in operations was R110m and the net operating cash outflow R160m (H1 FY26: R88m) as construction contracts rose 14% to R2.40bn. 77% of revenue was recognised over time (H1 FY26: 43%), which builds contract assets ahead of transfers and cash. Cash fell to R52m from R184m in February 2026.
- Net debt increased to R1.4bn, taking net debt/equity to 0.86x (max 1.5x) and DSCR to 1.35x (min 1.2x). The higher gearing relates to Bankenveld and to the capital needed to complete and sell non-core projects. Debt levels should reduce to approx. R1bn over the next 2-3 years. Finance costs fell to R14.8m (H1 FY26: R33.1m) as 82% of the gross finance cost of R81.6m was capitalised (H1 FY26: 54%).
- Memorial Parks revenue rose 20% to R47.8m at a 54.8% gross margin, cash collections rose 18% to R60.8m and the lay-by book reached R76.4m (Feb-26: R59.7m).
- Non-core disposals are in progress. An offer to purchase Cornubia has been accepted; an MoU has been received on Vredehoek. The programme as a whole is now targeted for completion within five years.
- Calgro remains well positioned in the property market with a well-developed pipeline. We reduce our Target Price for Calgro to R7.30 (from R9.50), a forward 3.9 times FY27E PE on diluted HEPS of 188c. The residential discount in that value is 50%, widened from 40% for election risk. Calgro is trading at a significant discount to realisable NAV.