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Top JSE performer - success a secret

Calgro M3’s fully integrated property model pips the market in its favour.

Calgro M3, a relatively low-key residential development company listed on the JSE, has again come under the spotlight prompting interest over its meteoric rise on the local bourse in comparison to competitors like RBA and Sea Kay Holdings.

CEO Ben Pierre Malherbe has attributed the company’s success partly to its fully integrated model in the property sector. Commenting specifically on Calgro’s results, he said, “We are converting our pipeline into construction and that is what you are seeing coming through. We bought our own agricultural land and we’ve got our own town planning company. We go through a process where we get the land zoned and these properties are now ready to go to market.”
Being a landowner, Malherbe says, brings with it a level of flexibility others in the market don’t necessarily enjoy. “We have competitors in every market segment like ours, doing affordable housing. Then there are those contracted by government in a fully subsidised market, but they are all in specific segments. We play right across the market and that is our biggest differentiator because we are the landowner and we are flexible.”

Malherbe cites as an example Calgro’s ability to turn down government projects in the event of budget constraints. “Some developers have the advantage in that they only do affordable. We do integrated, which is the way government wants us to go. The more people enter the market the more acceptable it will become because it is still a relatively foreign concept.”

In the event of government having the budget, Calgro “will build for them. If they haven’t got the budget, we don’t. We are under no pressure to build for them.”

A small cap analyst, who asked to remain anonymous, says it is Calgro’s ability to service a growing demand for affordable housing that is partly responsible for its success. “It’s a little bit of a mix of the market coming to you.”

He says one of the challenges ahead for Calgro is maintaining the extremely high standards it has become known for as it expands from a R5bn to R8bn pipeline.

According to the company’s results, Calgro has around R103m in the kitty. Malherbe says the company will remain conservative in its dealings, keeping the money in operations so that it can continue operating in the marketplace.

Commenting on the affordable housing sector in general, Malherbe says demand is “huge” across the country. “We are under huge pressure to go to other provinces. Key to us is ‘controlled growth.’ We can’t afford uncontrolled growth.”

Calgro’s main operations are currently in Gauteng with a sprawling development in Jabulani, Soweto, south west of Johannesburg. In nearby Fleurhof, 1 897 stands have been serviced thus far. That particular development is earmarked for around 9 000 units.  “In Jabulani, we’ve got 1 611 stands serviced out of a possible 4 199. So, for the next six years we’ll just continue delivering according to market demand.”

Commenting on rising urbanisation and migrant workers who buy properties, Malherbe says “it’s not a luxury; it’s not an investment. You don’t want to rent a property - you want to buy a place to stay.” This has become more attractive with lending institutions offering 100% bonds on properties under R500 000. “There are no transfer duties, so it’s just a healthier segment of the market” to be in. “In the low-end of the market, the demand is there and the finance is there. It’s a question of bringing the two together and implementing it,” Malherbe maintains.

On Thursday, the company reported that headline earnings moved up 282% to R65.4m, while property fair value moved to R1.385bn versus a cost of R506m.

The analyst has described Calgro’s latest FY results as “brilliant”. Asked if this was sustainable, the analyst said: “They are at the top of the range of building and construction.” He adds given the company’s current results, its performance must be seen as a turnaround from 2007 and 2008 when shares were trading at around 40c or 50c apiece.

This is in contrast to one of its competitors, RBA, which earlier this year raised around R14m in capital through three general issues totalling 80m ordinary shares for cash at between 12c and 19c per ordinary share from 17 February to 24 April 2012.

RBA supplies fully-bonded homes on a turnkey basis at a fixed price to the affordable housing market in Gauteng and Limpopo.

Calgro M3 was the JSE’s top-ranking share for the first ten months of 2011 and shot the lights out with it full year results for 2012.

“Calgro has a different model working for them, they absorb a lot of the demand (for housing) flooding in. This year’s results, in the context of last year, when their return on equity was 10%, they tripled it this year. This is a great result, but in the context of previous years, this is a recovery,” the analyst says.

Malherbe concedes, “Two years ago we were struggling; getting finance was an issue at the time. Now that we’re generating our own cash it’s so much easier. We’re not so dependent on raising cash the whole time and it’s easier to convert our pipeline.”



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