Business Report Companies

Calgro M3 shares fall 7.7% as profits tumble amidst infrastructure investments

HOUSING DEVELOPMENT

Edward West|Published

Calgro M3's integrated housing developments experienced "cautious” buyer sentiment for the six months to August 31, but there were signs of a recovering market as consumer appetite improved towards the end of July that continued into August. The company is currently putting down the infrastructure for the 20 000-unit Bankenveld project, near Sandton.

Image: Leon Nicholas/African News Agency (ANA)

Calgro M3, the South African integrated housing and memorial parks group traded on the JSE, witnessed a significant 7.7% drop in share price on Monday following the announcement of an 18.4% fall in headline earnings per share for the six months ended August 31.

The decline in share price to R5.13 in the morning - it traded at R6.60 a year ago - may be due to raised concerns among investors as the company grapples with substantial capital allocations to ongoing projects.

The decline in Calgro M3's revenue and profit for the six months was attributed to its investments in the Bankenveld District City Project, expected to result in some 20 000 additional housing units, where infrastructure installations have just begun.

These costs are slated to reach R158 million over the 2026 and 2027 financial periods. Revenues from these developments would not be recognised until public sector agreements were finalised.

During the reporting period, headline earnings per share decreased to 82.26 cents from the previous year’s 100.87 cents, with gross revenue witnessing a drop of over 10%. More positively, CEO Ben Pierre Malherbe reported signs of a recovering market, citing a cautious buyer sentiment that began to improve towards the end of July.

Malherbe assured stakeholders that Calgro M3’s gross profit margin held steady at 29.43%, slightly down from 29.57% the previous year, primarily driven by cost-saving measures and the benefits of historically low land costs. The stable margin was a positive indicator, as it remained firmly within the targeted 20%-25% range, he said.

During the six months, the group bought back 1.33 million shares at an average price of R5 each, leading to a reduction in share capital worth R6.66 million.

With residential property development accounting for about 91.34% of overall revenue, this segment reported an encouraging 11.59% increase, maintaining its gross profit margin at a stable 27.44%. Malherbe said infrastructure investments from both current and previous reporting periods have created ample serviced opportunities—2 589 in total—to support heightened demand and sales activities as they head into the next financial year.

Targeted marketing campaigns had successfully reduced stock on hand by over half in six months, largely through attracting interest from property investors. “The increase in appetite for this segment of the market demonstrates the inherent value within our developments," said Malherbe.

In terms of geographical focus, the construction activities within the Western Cape had gained traction, complementing a strategy to diversify provincial exposure. Completion of infrastructure in the Belhar project and a sold-out section of the Scottsdene development was expected to significantly contribute to the company’s performance in the latter half of the financial year.

Meanwhile, in Gauteng, the company was nearing completion on essential bulk and link installations in Fleurhof and Jabulani, which, in conjunction with previous investments, had resulted in a solid pipeline of serviced opportunities ready for development.

Calgro M3’s Memorial Parks segment increased revenue by 8% to R39.83m. Highlights included a remarkable 66.23% uptick in completed lay-by sales, signaling a robust demand for burial sites, which cements a strategy to focus on lucrative niches in South Africa’s economy.

Malherbe expressed optimism regarding future performance, citing ongoing demand for both residential units and burial sites, alongside a favourable response to recent interest rate cuts. The anticipated construction commencement at Platinum City Memorial Park, expected to offer over 28 000 burial opportunities by the last quarter of the 2026 financial year, could also enhance the group’s revenue streams.

Calgro M3’s management had pivoted strategies towards optimising their portfolio, reducing debt, and positioning both segments of their business for sustainable growth. The company was committed to better managing market capitalisation and net debt levels, while focusing on skills development initiatives to strengthen their employee expertise.

BUSINESS REPORT