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