Calgro M3 aims to return to profitability after selling off its noncore projects
• Property developer completes restructuring after being rocked by the horrors of 2020
Calgro M3 has completed its restructuring after the disposal of its last riskier construction project to focus on profitable contracts, CEO Wikus Lategan says.
The only JSE-listed integrated residential property and memorial parks developer had to take actions in 2020 to avoid going into financial distress and possibly out of business.
The company battled through the hard lockdown when it could not build any housing and has also had challenges with invasions on some of its construction sites, but Lategan said these have been resolved.
Calgro M3 “embarked on a series of actions designed to ensure the group’s ongoing sustainability and a return to fundamentals”, Lategan said.
“We learnt some tough lessons but I believe we are now in a position to grow for our shareholders and for our core housing development and memorial parks businesses to be profitable on a consistent basis again,” he said.
The most recent restructuring action was the sale of a housing project in the Free State for R49m last week, and the successful conclusion of a share repurchase earlier in the month. Calgro has repurchased 4,6% of its shares.
Lategan said that the rationale for selling noncore projects was in line with capital allocation priorities, where the proceeds of the transactions would be applied to projects that are further progressed and where a better return could be achieved.
“This aligns with strategic goals to be involved in fewer but more profitable projects in selected provinces,” he said.
”The restructuring is complete. We are now in a position where we can develop more housing and sell existing stock and we have moved away from riskier projects which could make losses,” he said.
To ensure the group’s sustainability, management was working to ensure that there was sufficient capital to have the necessary infrastructure in place at development projects, “rather than to rely on the government for this”. “This actually ends up being a win-win situation for all concerned, for those buying homes, for Calgro M3 and for government, as Calgro M3 assists to reduce the housing backlog,” said Lategan, adding that the group continues to experience good demand for the housing units it builds”
The company has also had access to funding from development finance institutions.
The company’s share price is down 12.77% year to date and 84% on a three-year basis.
Lategan said the performance of Calgro M3’s share price was disappointing as the company had an established history in SA, having been founded in 1995, and it serviced “a critical and high-demand sector of the local market, being affordable housing”.
Given the net asset value on the balance sheet of R781.5m, Calgro M3 was worth close to R6.43 per share, excluding treasury shares.
“We believe that by repurchasing shares at a material discount to Calgro M3’s intrinsic value, this represents a good opportunity to create value for our shareholders,” he said.
With the exclusion of treasury shares, Calgro M3 now has 121,400,069 shares in issue. Executive management has personally acquired more than 2% of the shares in issue, excluding treasury shares, since July 2019 in support of the group’s strategy, Lategan said.