A strong performance by the memorial parks business of JSE-listed Calgro M3, where R6.9 million in burial site sales was directly attributable to confirmed Covid-19 deaths, contributed to a strong turnaround in the second half of the property development group’s financial year to end-February 2021.
Read: Calgro M3 gets unexpected revenue boost from Covid-19 deaths (Oct 2020)
Total cash received from the memorial parks business increased by 57% to R53.6 million from R34.1 million in the previous year.
Calgro M3 CEO Wikus Lategan said that with 1 769 burial opportunities sold in the year compared to 1 057 a year ago, and a remaining pipeline of 59 366 burial opportunities, the group is well positioned and remains bullish on growth opportunities in this business segment.
Luister na Ryk van Niekerk se onderhoud met Calgro M3 uitvoerende hoof Wikus Lategan:
Lategan said revenue from the memorial parks increased by 65.2% in the year and subsequent to year-end it is continuing on that growth trajectory despite Covid-19 deaths being low in the past two to three months.
“We don’t have a 1% market share so the room for growth is immense,” he said.
Lategan said the group has five memorial parks, with those located at Nasrec and Fourways in Johannesburg and Durbanville in Cape Town by far the biggest revenue drivers.
Calgro M3 anticipates bringing on stream about three further memorial parks in the short to medium term.
“This will probably double the current pipeline of 59 366 burial opportunities because it includes a property adjacent to the Bloemfontein memorial park that we bought with 40 000 burial opportunities,” Lategan said.
Lategan said the residential property development business made a swift recovery in the second half of the financial year after effectively losing three months of production following two months of no construction because of Covid-19 and a slow start up.
He said the consistent monthly hand over of residential units has enhanced the stability of group cash flows and reduced capital exposure.
“With 4 654 opportunities currently under construction, compared to 2 393 a year ago, and a pipeline of 32 590 opportunities at Belhar CBD, Fleurhof, Jabulani Precinct in Soweto [three projects], Scottsdene, South Hills, Tanganani and Witpoortjie, the group is well positioned with sufficient capital and liquidity to return to activity levels within the next few years that were last seen five years ago.
“With 6 073 serviced opportunities available, the commencement of installation of new infrastructure should also be forthcoming once the required government funding is made available, but no immediate capital pressures exist in this regard,” he said.
Calgro M3 sold the non-core Vista Park development, resulting in a profit of R36.6 million, and its Ruimsig rental units to AFHCO Holdings.
Lategan said the group is also selling its rental units at Southfields on the open market, with the group anticipating receiving most of the R150 million proceeds from these sales in the current financial year.
The group is also selling out in the Eastern Cape and KwaZulu-Natal to focus on Gauteng and the Western Cape, which should generate in excess of a further R200 million, he said.
“To keep growth fair, we’ve always said we will return to over 4 000 unit sales for 12 months. We are back there now.
“All these units have been sold so once we transfer them is indicative of where the results will be next year.
“We’d like to get back to sales of 6 000 units a year and then possibly, especially if the share price remains where it is, do some more share buybacks.
“We believe the share is deeply undervalued and bought back about 4.9% already last year so we will continue to buy back shares at these levels,” he said.
Calgro had a tough first six months of the year, with Covid-related costs amounting to R35.8 million and the closure of the construction division a further R12.9 million.
Group revenue for the year decreased by 10.7% to R879.1 million from R984.1 million in the previous year after being down 24.0% in the first half.
The gross profit margin recovered to 12.3% from 7.9% at end-August 2020 and 10.2% in the previous year.
Calgro M3 reported headline loss per share of 15.17 cents from the 1.77 cents profit in the previous year, with the loss attributed to certain once-off costs.
Rowan Goeller, an analyst at Chronux Research, said Calgro M3 had a very strong performance in the second half of its financial year.
“What we are seeing is a turnaround of Calgro after a tough period when they were also forced to stop construction on a lot of their developments because of land invasions,” he said.
Goeller said Calgro M3 still has a nice mix of developments where there is both public and private demand.
“Government is buying a fair amount of what Calgro builds these days for military veterans and pensioners,” he said.
Goeller believes the memorial parks business could become a meaningful contributor to the group because its business model is gaining traction.
“It’s an immature business model but the fact that government cemeteries are filling up fast – whether or not you believe you have a dignified burial at a government cemetery – that is where their natural demand comes from,” he said.
Shares in Calgro M3 dropped 1.96% on Monday to close at R2.00.