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Johannesburg - Calgro M3 Holdings [JSE:CGR], the best performing stock on the Johannesburg Stock Exchange over the past five years, expects revenue and earnings growth until at least 2018 as demand for lower-priced houses outpaces supply.
The developer of residential housing has a R19bn project pipeline over the next decade, and is in talks to as much as double the size of some developments under construction, CEO Ben Pierre Malherbe said in an interview this week. The company’s annual profit has gained every year since 2011.
Calgro M3 is benefiting from government efforts to subsidise low-cost housing for poorer families, while demand for affordable properties is rising from those newly eligible for mortgages. The company operates in a “huge” market with little competition, Malherbe said. That means profit can currently be invested into new developments.
“I’d say for the next three years there’s no let up, we’ll keep on growing,” Malherbe said in an interview at Calgro M3’s Johannesburg headquarters.
The shares rose as much as 3.1% to R18.05, a one-month high, and traded 2.3% higher at 16:29 local time. The stock has gained 26% this year, and has been the best performer on the JSE since 2010, according to data compiled by Bloomberg. Calgro M3 is valued at R2.3bn.
The company prefers to own the land on which it develops, and keeps costs under control by employing its own town planners and architects, Malherbe said. Infrastructure such as roads and sewers are paid for and owned by local city authorities and the company won’t build anything that hasn’t been sold in advance, he said. Projects generally break even after about 50% completion.
Existing residential projects can be funded from cash flow, Malherbe said. Demand is probably strong enough to double the pipeline in a year if the company chose to, yet Calgro M3 is wary of “uncontrollable growth,” Malherbe said.
“The opportunities are there, the projects are there,” the executive said. “We must make sure that whatever we take on we can do.”
