Slowdown in housing business set to hit Calgro’s earnings despite repositioning
The group released a voluntary trading statement in anticipation of its financial results due in the middle of May
Calgro M3, which develops subsidised housing with the government, has announced that its headline earnings and earnings are expected to have fallen in the year to February, given a slowdown in its housing business.
The group released a voluntary trading statement in anticipation of its financial results due in the middle of May.
"The integrated residential development business experienced a challenging year, which resulted in lower than expected growth," said Calgro CEO Wikus Lategan.
Headline earnings per share (HEPS) for the 12 months ended February 28 were expected to be between 131.69c a share and 134.47c a share compared with 138.96c a share reported in the previous corresponding period. This equated to a decrease of between -3.23% and -5.23%.
Earnings per share (EPS) for the 12 months ended February 28 are expected to be between 131.53c per share and 134.59c per share compared with 152.77c a share as reported in the corresponding period a year ago. This equated to a decrease of between -1.90% and -13.90%.
The difference in HEPS and EPS in the previous year is due to a fair-value adjustment that originated from the buyout of the minority shareholders’ 30% in Calgro’s Fleurhof project.
"The group has strategically repositioned itself in the anticipation of tough economic conditions by diversifying into other sectors within the integrated residential development business, as well as advancing the memorial parks business and establishing the Real Estate Investment Trust (Reit )," said Lategan.
Late in 2016, Calgro joined forces with SA Corporate Real Estate to build a residential Reit in SA in the coming five to six years, with a planned asset base of between R10bn and R15bn.
This would yield annuity income for the group in future, which would stabilise "lumpy" cash flows generally associated with property development.
"This was done to ensure that risk is optimally mitigated and managed in these uncertain times, setting a solid foundation for future growth," said Lategan.
"While navigating the current business landscape, as well as diversifying risk across sectors and businesses, the group has remained focused on maintaining the underlying theme of property development that is synonymous with Calgro M3," he said.
Commenting on the update, Paul Theron of Vestact Asset Management said volatility in Calgro’s earnings were not unexpected because projects could come on stream at irregular times.