Calgro M3 — Investments support strong revenue pipeline

Research: Real Estate

Calgro M3 — Investments support strong revenue pipeline

Calgro M3’s core business is integrated residential housing development and memorial parks. Established in 1995, the company generates the bulk of its revenue from the Gauteng and Western Cape provinces in South Africa. The residential development business acquires land, develops bulk infrastructure and builds affordable and luxury residential units for sale. In Q224, Calgro M3 acquired a huge land parcel that it plans to develop over the next 15 years, adding ZAR18bn to the current revenue pipeline of ZAR16bn. Calgro also acquired Platinum City Memorial Park, which added ZAR426m to the memorial parks revenue pipeline. The stock is trading at a low historical P/E of 3.0x and a shareholder yield (sum of dividend yield, share buyback yield and debt repayment yield) of 5.4%, underpinned by the recent ZAR73m share buyback. The price to book ratio is 0.4x.

Real Estate

Calgro M3 Holdings

Investments support strong revenue pipeline

Real estate

QuickView

11 September 2024

Price

ZAR5.68

Market cap

ZAR543m

Share price graph

Share details

Code

CGR

Listing

JSE

Shares in issue

96.06m

Business description

Calgro M3 Holdings specialises in integrated residential housing development and memorial parks. The company was established in 1995. It generates the bulk of its revenue from Gauteng and Western Cape provinces, the largest contributors to South Africa’s gross domestic product.

Bull

Strong revenue pipeline over the next 15 years.

Trades at 3.0x historical P/E.

Management announced a dividend policy (minimum of 5% of the HEPS), after paying a maiden dividend of 9.49c/share in FY24.

Bear

High interest rates in South Africa are not positive for the residential property market.

Construction project disruptions by criminal elements who demand economic participation in projects.

Shareholder yield of 5.4% could be adversely affected by growth projects.

Analyst

Thobelani Maphumulo

+44 (0)20 3077 5700

Calgro M3’s core business is integrated residential housing development and memorial parks. Established in 1995, the company generates the bulk of its revenue from the Gauteng and Western Cape provinces in South Africa. The residential development business acquires land, develops bulk infrastructure and builds affordable and luxury residential units for sale. In Q224, Calgro M3 acquired a huge land parcel that it plans to develop over the next 15 years, adding ZAR18bn to the current revenue pipeline of ZAR16bn. Calgro also acquired Platinum City Memorial Park, which added ZAR426m to the memorial parks revenue pipeline. The stock is trading at a low historical P/E of 3.0x and a shareholder yield (sum of dividend yield, share buyback yield and debt repayment yield) of 5.4%, underpinned by the recent ZAR73m share buyback. The price to book ratio is 0.4x.

Land acquisitions bode well for future growth

Calgro M3 generates the bulk of its revenue from building and selling residential units. In FY24, the company recorded three- and five-year revenue CAGRs of 13.5% and 5.2%, respectively. The residential development revenue pipeline has jumped to ZAR34bn from ZAR16bn after the acquisition of the Frankenwald development. The land is adjacent to the Marlboro Gautrain Station between the M1 and N3 national highways in Johannesburg (7.4km from the affluent Sandton Central Business District). Another recent investment is Platinum City Memorial Park in Rustenburg, North West province. This purchase has contributed ZAR426m to the memorial parks revenue pipeline of ZAR2.6bn, which is underpinned by 120,348 grave sites, priced at ZAR22,079 per grave, on average.

Bankenveld District City doubles revenue pipeline

Calgro M3 and Eris Property Group acquired the Frankenwald parcel to develop the Bankenveld District City, which is a multi-used property development. Eris Property Group will focus on commercial properties, using 885,000sqm of land to build a regional shopping mall, data centre, office blocks, a logistics hub and a 6ha high-density agricultural facility. Calgro M3 will build between 20,000 and 30,000 residential units, priced between ZAR500,000 and ZAR1.5m, over a 15-year period. This development will add ZAR18bn to the current revenue pipeline of ZAR16bn. Management expects the development of the bulk infrastructure (municipal services and internal infrastructure), a third of the land, to take two years to complete, with commencement scheduled for October 2024. The top structure will be built over a 13-year time horizon. The projected revenue will be c ZAR1.3bn per year; FY24 group revenue was ZAR1.28bn.

Historical financials

Year
end

Revenue
(ZARm)

PBT
(ZARm)

EPS
(ZARc)

DPS
(ZARc)

P/E
(x)

Yield
(%)

02/22

1,321.6

179.5

105.7

0.0

5.4

N/A

02/23

1,525.3

252.3

153.4

0.0

3.7

N/A

02/24

1,284.5

269.7

192.0

9.5

2.9

1.6

Source: Company financial reports

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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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