Calgro M3 expecting a robust second-half
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CALGRO M3 anticipates a robust second-half performance with firm revenue growth from development and sale of its integrated housing developments and from its memorial parks, chief executive Wikus Lategan said yesterday.
Revenue increased strongly by 45.6 percent to R576.2 million in the six months to August 2021, the gross profit margin increased to 19.7 percent from 7.9 percent, and interim headline earnings per share increased by 262.8 percent to 42.79 cents per share. Net asset value stood at R7.23 per share.
Chronux Research analyst Rowan Goeller said Calgro M3 should have a “fairly good second half”, demand remained healthy, the group had done well to simplify the business, cash flows were strong, with steady cash flow from the memorial parks business, and there was a large pipeline of sites to deliver on. He believed a revenue uptick in the second half was likely to “be quite significant.”
Lategan said in a telephone interview while some of the latest economic data on housing demand indicated slower growth in house sales from last year, they were seeing “consistent demand” and they never had as much units in the open market as it does at present.
The group handed over 771 opportunities, and there were 5 091 opportunities currently under development. He said in a telephone interview that the homes they developed all had, for instance, granite kitchen tops, and their lowest priced homes came with solar and gas fittings.
“Over time we have managed to cost these improvements into the price,” he said.
The higher operating margin had vindicated an earlier strategic decision to close and outsource the construction element of the business.
He said the memorial parks also traditionally saw an uptick in demand through the winter months, irrespective of the current easing of the Covid-19 pandemic in the country.
He said the July civil unrest showed that the group had learnt its lessons on community engagement following upheavals in this regard in 2016 and 2017, and none of its developments were affected, and in Jabulani, Soweto, for example, the community had protected the developments.
Cash from operating activities amounted to R133.2 million (R115.7m), and there was R615m of liquidity on the balance sheet.
The net debt to equity ratio decreased to 0.84:1, well ahead of the February 2022 target of 0.9:1, and would reduce further, he said.
“Our liquidity will be enhanced with the sale of certain retail, commercial and remaining rental properties as well as non-strategic projects,” he said.
“This performance reflects our continued sales efforts and increased focus on brand awareness across both segments of the business, with property development contributing R545.7m of total revenue.”
He expected the gross operating margin would continued to improve to around their target of 20 to 25 percent.
Overhead costs fell by 23 percent, but were expected to increase slightly in the second half as more units were built and marketing and brand building was undertaken. Building material costs were fixed contractually over 12 to 18 months.
He said the memorial parks produced a 52.7 percent increase in cash receipts and was proving a good hedge for economic cycles and unforeseen events. The cash receipts from this business were sufficient to cover the group's administrative expenses in the period.
“The benefit of this over the long term is cash receipts from memorial parks should increase to such a level that it supports all group overheads and interest obligations,” he said. There were sufficient serviced and unserviced opportunities available across to fuel growth for the foreseeable future, he said.