South African property developer booming

Calgro M3, which has seen its share price grow by nearly 80% this year, has reported strong interim results with a significant increase in earnings.

Calgro M3 is a local property investment company that specialises in the development of Integrated Residential Developments and the development and management of Memorial Parks. 

The company released its interim results for the six months ended 31 August 2024 on Monday, which revealed strong results.

Despite a drop in group revenue from R689 million to R507 million, the company’s gross profit margin increased to 29.69%. 

This, together with an increase in the share of profits from joint ventures, cost containment, and share buybacks, led to a 28.55% increase in Calgro’s headline earnings per share.

The revenue decrease was attributed to reduced unit sales due to pressure on South Africa’s already constrained consumers and delayed transfers caused by the current high interest rate and depressed economic cycle. 

However, Calgro banked over R200 million in cash during the first two weeks of September.

During the period, 869 units were handed over, compared to 1,193 units last year, while 1,539 units are under construction, with the majority expected to be completed by the end of February 2025. 

“We intend to commence with a further 1,592 units shortly that are targeted for completion in the next financial year,” the company said.

“The group has a further 2,609 serviced opportunities currently available that are ready for top structure construction to commence and a further 2,416 currently being serviced.” 

Calgro’s growth in gross margin reflects the company’s strategic move to a higher mix of open market and non-public sector units as well as the project and product mix, which now benefits from historic land and infrastructure costs. 

In addition, while the number of units handed over was slightly lower than in the previous period, the positive product mix and lower infrastructure costs offset this reduction, leading to an improved gross profit margin of 29.69%. 

“The margin is expected to remain above the target for the short-to-medium term,” the company said. 

To service the lower, high-demand end of the unhoused market, Calgro M3’s national average sales price for our core two-bedroom family apartment during the period was R636,617, excluding VAT.

The company said strategic capital allocation remains a priority, with R138 million invested in infrastructure across key projects, including Fleurhof, Jabulani, and Belhar, during the period.

Jointly, these projects have just over R100 million in bulk and link infrastructure costs remaining to unlock the balance of the units to be developed. 

In addition, the company allocated substantial funds to its South Hills joint venture for the installation and construction of infrastructure for open-market units and to the new Bankenveld development. 

Following years of negotiations, this development was recently transferred to the Calgro M3 and Eris Property Group joint venture in September 2024.

“This is a strategic milestone, and bulk and link infrastructure construction will commence in the first quarter of 2025,” the company said. 

“The first phase of bulk and link infrastructure is a total of R250 million, of which 60% will be funded by Calgro M3.”

Calgro said these investments position the company to capture future growth and generate positive cash flows.

Despite handing over marginally fewer units than planned during the period, Calgro’s overall Residential Property Development pipeline has grown to in excess of 38,000 units after the exclusion of the Witpoortjie project. 

“The current pipeline has an unescalated future revenue potential in excess of R33 billion, with the recent pipeline growth coming from 2,500 additional opportunities in Fleurhof and a further 20,000+ opportunities to be delivered in the Bankeveld development,” the company said.

“This development alone unlocks a further R18+ billion in revenue over its lifecycle.”