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Finweek English Edition - - INVESTMENT -

This week we’re com­par­ing two sim­i­lar com­pa­nies on the JSE: Calgro M3 Hold­ings (CGR)* and RBA Hold­ings (RBA). Both are in the busi­ness of build­ing and pro­vid­ing af­ford­able hous­ing al­beit CGR also of­fers more ex­pen­sive houses but has been fo­cus­ing on the lower-in­come houses re­cently, as there is Government sup­port for buy­ers. The hous­ing mar­ket still has a mas­sive de­mand in the lower- and mid­dlein­come ar­eas, and while CGR and RBA are both con­struc­tion com­pa­nies of a sort, they op­er­ate in a very dif­fer­ent mar­ket to the tra­di­tional con­struc­tion com­pa­nies. RBA is the baby of the two with a mar­ket cap of only R45m** while CGR sits on a mar­ket cap of over R650m.

Their re­spec­tive year-ends are Fe­bru­ary for CGR and De­cem­ber for RBA, which means we’re work­ing with older data and that we’re wait­ing for any trad­ing up­date. CGR has in the past is­sued trad­ing up­dates well be­fore the year end and back in De­cem­ber it told the mar­ket that it ex­pected HEPS to be at least 20% higher but couldn’t give de­tails; we’ll likely get th­ese dur­ing March. RBA hasn’t is­sued any up­date sug­gest­ing earn­ings will not be more than 20% dif­fer­ent from the pre­vi­ous year.

Turn­ing to his­toric earn­ings mul­ti­ples, we see CGR on 7.8 times while RBA is on a much lower 3.5 times with nei­ther com­pany paying a div­i­dend. Tak­ing th­ese num­bers at face value and as­sum­ing in­creased earn­ings for both, RBA seems to of­fer bet­ter value – but can it de­liver?

For the pe­riod ended June 2012, RBA had a neg­a­tive cash po­si­tion of some R500 000 while CGR had over R150m al­beit with debt of around R268m. Be­ing able to ser­vice the debt from cash f low

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