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Calgro M3 in good position to realise growth when interest rates turn

Calgro M3 CEO Wikus Lategan

Calgro M3 CEO Wikus Lategan

16th October 2023

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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JSE-listed residential property development and investment company Calgro M3 grew its revenue by 13.5% to R688.9-million, increased cash by 11.2% to R191.9-million, and maintained net debt to equity at 0.61 for the six months ended August 31.

By the end of the six months, the company had 1 937 serviced residential units and was building the services of a further 3 398 units, CEO Wikus Lategan said on October 16.

This means that the company's eight projects will have limited further capital requirements, he added.

“We allocated R250-million in capital to infrastructure in Fleurhof, Jabulani and Belhar, and we will invest a further R150-million in infrastructure during the [current financial] year.”

The company handed over 949 opportunities in the six-month period, and a further 2 118 opportunities are under construction, with more than half set for handover by February 2024.

“We find ourselves in a strong financial position with consistent cash flows. The revenue pipeline is in excess of R15-billion, representing 22 357 opportunities,” he added.

“We achieved all this while funding infrastructure of R94.3-million in support of the future pipeline and repurchasing 18.6% of the group’s issued share capital. This also supported the 26.1% increase in net asset value to R11.99 a share, up from R9.51 a share in February.

“We expect interest rates to peak during the first quarter or second quarter of 2024, and once they start to decline, we expect to see an increase and for the market to come alive,” he said.

The company sees five interested parties for each residential sale currently but expects to see more sales once interest rates start to decrease.

“One only has to look at how many people in informal settlements have formal jobs to see that housing remains a necessity, or how many families are paying high rental prices of R3 500 to R4 000 for a small room with shared amenities to see that there are lots of opportunities,” Lategan said.

The company is attracting sales as it can be cheaper for people to own their own homes, he emphasised.

“The moment interest rates decline, our revenue and sales will increase and our administration costs will decrease proportionally. Our medium- to long-term growth from serviced opportunities is an important part of our strategy,” he said.

Calgro M3 has a deep understanding of the markets it serves, and how it must prioritise its long-term sustainability, expand its market share, and roll out its existing pipeline opportunities in a controlled but adaptable manner, he added.

“With an understanding of the financial well-being of our consumers, we decided to slow down the construction of top structures in the lower-income market units. However, we have seen a positive shift towards better average sales prices and a 13.9% increase in revenue was recorded in the residential property development segment,” he highlighted.

Further, the company's rate of 100% bank approvals has not decreased, but more families are instead preferring to rent in the current economic conditions owing to financial pressures.

“Sales can turn quickly and we can then capitalise lots of growth from the serviced opportunities. As soon as interest rates decline, the conversion rate will pick up without us doing anything differently and give rise to real, proper growth,” he noted.

Meanwhile, the company did not issue a dividend, with management deciding that cash should be retained to fund growth across the group, ensure investment in future projects and reduce debt and interest.

However, the company remains committed to adopting a dividend policy within the current financial year, which will serve as a guideline for considering and declaring dividends in future, Lategan said.

It will announce its dividend policy in February, which will regulate how much profit and cash from operations will be used for dividends, he said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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