On its way out?

Pos­si­bil­ity of a delist­ing as di­rec­tors buy its shares

Finweek English Edition - - COMPANIES&MARKETS - MARC ASH­TON marca@fin24.com

JSE-LISTED prop­erty de­vel­oper Cal­gro M3 Hold­ings could be on its way out af­ter fail­ing to at­tract suf­fi­cient in­ter­est on the ex­change. But if it de­parts at cur­rent lev­els then share­hold­ers will be kick­ing them­selves. When fi­nan­cial di­rec­tor Wikus Late­gan spoke to Fin24.com in 2008, he de­scribed the com­pany as the “bar­gain of the cen­tury” with the share trad­ing at around 55c. That was well off the R3,30 it was trad­ing at in 2007. At the time Late­gan said the prospect of delist­ing had come up but there was a lot of cred­i­bil­ity in be­ing a listed en­tity.

Fast-for­ward to year-end 2010, when the share was still trad­ing near 55c, with Late­gan and CEO Ben Mal­herbe buy­ing shares, no­tably from other di­rec­tors. That’s been a trend Fin­week has ob­served since its an­nual gen­eral meet­ing held in June last year.

One as­set man­ager says Cal­gro was also ap­proached with a ten­ta­tive ex­ter­nal of­fer that was quickly re­buffed by man­age­ment for be­ing too low. But that of­fer might have spurred man­age­ment into ac­tion and with no im­me­di­ate need for cap­i­tal a delist­ing could be on the cards.

Trad­ing at 55c and with neg­a­tive 3,6c in head­line earn­ings for the half year, Cal­gro doesn’t look too ex­cit­ing. How­ever, a closer look at its bal­ance sheet may be war­ranted. The com­pany has a net as­set value of around 120c and tan­gi­ble NAV of around 90c, rep­re­sent­ing a sig­nif­i­cant pre­mium to where the share trades.

Cal­gro has three ma­jor de­vel­op­ments that should come on­line be­tween late 2011 and 2013 – namely, Jab­u­lani, Fleurhof and Pen­nyville. Fleurhof – south-west of Jo­han­nes­burg – is ex­pected to com­prise 6 000 res­i­den­tial units by 2013 and these could rise to as many as 9 000 by 2015. They are val­ued at be­tween R300 000 and R600 000. The Jab­u­lani Vil­lage is near the high-growth re­gion near the Jab­u­lani Mall in Soweto and will com­prise around 4 000 units.

The Pen­nyville project was com­pleted in 2008 but re­quired an ad­di­tional cap­i­tal in­jec­tion last year to rec­tify some build­ing faults. How­ever, de­mand has again picked up for these low-cost hous­ing ini­tia­tives and that’s trans­lat­ing into real op­er­at­ing cash flow for Cal­gro.

Much like a pri­vate eq­uity firm, a prop­erty de­vel­oper such as Cal­gro will typ­i­cally have quite “lumpy” earn­ings cy­cles. It will need cap­i­tal up­front to fund its de­vel­op­ments and if it’s done its sums cor­rectly and can mar­ket its de­vel­op­ments it should be able to re­alise sig­nif­i­cant value and cash flow from those port­fo­lios.

Man­age­ment has al­ready in­di­cated op­er­at­ing cash flow was im­prov­ing for the first six months of the fi­nan­cial year.

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