Calgro is ‘deeply undervalued’

BUSINESSES IN LARGE MARKETS FOR FREE Memorial Parks is a high-growth business being rolled out across SA.

The market currently sees Calgro M3 at best as a property development company and at worst a construction company.

It’s a defensive homebuilder with core defensive Memorial Park and Reit businesses, operating in huge markets, says Alpha Wealth fund manager Keith McLachlan.

Calgro M3 isn’t cyclical like construction groups. The housing business is fairly valued and the investor gets the other two businesses for nothing, McLachlan says.

As a whole the group is “deeply

undervalued”, he says. In four to five years, these two “free” businesses will be equal in size to the housing business – if not bigger.

The group reported a 16.7% increase in revenue for the year ended February, to R2.3 billion. Core headline earnings increased 6.97% to 143.47c per share.

Calgro M3 CEO Wikus Lategan said revenue slowed down in the second half, as management slowed down operations to prevent undue pressure on working capital. It took longer than expected to secure additional working, risk and opportunity funding.

In November, it secured R278 million as the first tranche of international funding from Societe De Promotion Et De Participation Pour La Cooperation Economique SA. The balance of R109 million is due in June/July, Lategan said.

During the year, Calgro M3’s housing development business had 8 564 units under construction; 3 426 were completed and handed to owners. About half of

the balance should be handed over by end July. A further 3 500 units have been sold.

The total Residential Property Development pipeline consists of 54 376 units, valued at about R25.3 billion, Lategan said.

McLachlan says the bulk of this pipeline will be executed over the next six years and that supports the current share evaluation.

Memorial Parks contributed 5.14% to group profit after tax, from a zero base. Lategan says this is a high-growth business and the group hopes to increase its profit contribution to 10% in the next financial year.

Over the medium term the goal is equal contributions from all three businesses.

It’s rolling out its Memorial Parks countrywide and has made acquisitions in Cape Town and Bloemfontein.

McLachlan says this is a defensive business that provides annuity income, as is the residential rental investment business.