Hope amid the muddle
The Calgro M3* results were very messy, mainly thanks to new IFRS 15 accounting methodology that, while not changing the fundamentals of the business significantly, changed how the homes developer reports results. One example is that the company used to view a project as one and account for earnings in a smoothed manner. Now it has to account each unit individually and they all have different margins, with some actually being loss-making. This is because, in order for the government to fund bulk infrastructure and transport, Calgro has to offer a number of units at a lower income, which is at times done at a loss. Overall, these losses are fine because the infrastructure enables Calgro to also build higher-margin homes that more than offset the loss-makers. But it messes with results: the company has written back R317m of retained earnings that will come back to the income statement over the next three years. Interestingly, the discounted value of the land the company holds is worth about 950c a share, marginally below the current share price and presenting an opportunity for exposure to SA Inc – especially with further price weakness.