It’s four years since affordable housing developer and memorial parks company Calgro M3 cratered, racked by setbacks at its two main development sites. It slumped to a loss and investors fled. This week the company reported its highest profit and its debt at a 10-year low. But its share price remains at a third of NAV. The FM spoke to CEO Wikus Lategan.
Could Calgro have fallen over in 2019?
Most probably, yes. We grew exponentially but our debt also grew exponentially. Then we had a land invasion at Scottsdene [in Cape Town], and Fleurhof [in Johannesburg] had electricity issues. And that was 75% of our revenue. If you shoot down that much of your revenue in 60 days, you run into difficulties. The benefit we have today is that we have the management team that was there at the time still here. Those school fees are still freshly imprinted in our minds, which is why perhaps we’re overly cautious about the balance sheet.
How did you come right?
Housing is not a luxury, it’s a necessity, and we said if we’re not here, no-one will do this, so we worked as hard as we could. We never missed an interest or capital payment but we also had some luck: we signed one or two bulk deals where clients paid us monthly, we also had one or two debt providers that suddenly had lots of liquidity and offered us more long-term money. Remember, Calgro’s got no secured debt, it’s all capital markets and development finance debt. All of them trusted us to return their money, and when that trust is put in you, you work a lot harder. You only have one reputation.
We’ll continue to buy back the shares at this level because that’s better value creation for long-term shareholders. I bought more shares, the directors are buying. We’ll take out all the shareholders that don’t want to be there
— Wikus Lategan
But it must frustrate you that your NAV is now R9.51 yet your shares have only this week climbed back above R3.
It frustrates the living hell out of me, to be quite honest. What’s worse is that up to last Friday, we bought back 13-million shares at an average price of R2.44, so if you look at the NAV from that perspective it’s now roughly R10.50 a share. We’ll continue to buy back the shares at this level because that’s better value creation for long-term shareholders. I bought more shares, the directors are buying. We’ll take out all the shareholders that don’t want to be there; there’s a lot related to the Riskowitz Value Fund and once that overhang is out we believe the share price will start following. And we hope to announce a dividend policy before year-end which should show investors the confidence we have in our cash-generation as well.
You talk about having 22,000 housing opportunities worth R15.9bn. Last year you handed over 3,186 units, so how realistic is that target? And over what period?
We started handing over more units on a monthly basis to try to take the lumpiness out of the business and make the cash flow more predictable. I’m not sure I want to go to 6,000 or 7,000 units a year; you don’t want to create this monster again that you have to feed. But can we sustainably go to between 4,000 and 5,000 units a year? I believe so.
Does that make Calgro a better investment proposition?
We believe so. I’ve been here for close on 15 years and I own 7-million shares, or about 6.5% of the company, so I would like to see my value unlocked. Our middle-management team is also buying into a lot more equity, and once you start getting to a dividend payout you’ll tangibly feel the returns.
Are those opportunities across the country? Famously, you left KwaZulu-Natal thanks to the construction mafias there?
We’re predominantly in Gauteng and the Western Cape, with a bit of exposure in the Eastern Cape and a property still in KZN. The media made a big hoo-ha which hurt us politically quite a bit ...
Why? It’s evidently a huge problem
We try to have good relationships with all government spheres — they still have to approve our plans and rate clearances — [but] they believed we bad-mouthed them, which we didn’t. I could never say we’ll never go back to KZN, but if we focus on Gauteng and the Western Cape it’s easy for senior management to travel. I visit all projects once a month; the whole idea is that you’re close to the details. Gauteng and the Western Cape are 66% of the housing market in SA, so why do we have to take risk anywhere else?
So next year looks good?
I think our cash flow will be the most consistent in Calgro’s history, and we’ve got construction that’s in way more progressed status than it normally is in the cycle. Demand is still strong. Our conversion from someone walking in the door to a sale is less but we’re getting way more clients through the door, in fact double, so our sales are still up. And in our memorial park business we’ve introduced a lay-by option of up to 24 months, interest-free, on graves. That’s making the product more affordable.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.