Summit TV talks to Ben Pierre Malherbe, CEO of Calgro M3, the housing development group, about its move to the JSE’s main board. BEN Pierre Malherbe is CEO of Calgro M3, the property development group. Watch Calgro M3 on Summit TV

SUMMIT TV: Calgro M3 shares were among the best performers on the JSE in 2011, gaining 482%, but it didn’t stop there: up another 28% in the year to date. Now it has moved to the main board of the JSE after listing on the alternative exchange (AltX). Would you have moved to the main board of the JSE if your shares hadn’t done what they did, which was a phenomenal performance?

BEN PIERRE MALHERBE: Yes, I think we would have. If you look at anyone listing on the AltX, the goal is to end up on the main board – we’ve been on the AltX almost five years and it was time to graduate to the main board.

STV: Would you have waited longer if your shares languished?

BPM: Possibly.

STV: Now that you’re on the main board, does it make a difference? Are you able to attract more institutional interest and would you go to the markets to raise some capital?

BPM: We are not going out there to raise some capital. We had the opportunity but decided not to at this stage. The main reason in going to the main board was to attract institutional investors that are not allowed to invest in companies on the AltX.

STV: I was looking through your shareholder register on I-Net Bridge and it looks like you have primarily private investors. You were telling me there had been institutional interest in the company via debt – perhaps you can tell us a bit about that? BPM: Yes, through the bond exchange of the JSE we’ve been able to raise some debt through institutional investors through a bond rather than equity.

STV: So there is interest out there?

BPM: Yes, there is interest out there. Every time we go on a road show and we speak to them, there is interest – but they were not allowed to invest in the equities.

STV: Why aren’t you looking to raised equity from the markets at this stage? Your share has had an excellent run, which would suggest that there would be an appetite.

BPM: I think we are still undervalued – if you look, we had a great year last year, but on a five-year view we lost a lot of value through the tough times. If you look at the recession, we came down from R3 per share to 38 cents. To date we’ve seen a lot of recovery but we are on a growth path.

STV: Can you talk us through some of your projects? You’ve expanded your footprint into the Western Cape.

BPM: The Western Cape is new to us – we went in there last year with a R554m tender at Scottsdene where we are on the ground installing infrastructure. Towards the end of the year we were awarded a R1,4bn project through the province. We are trying to spread our risk between the province and the city.

STV: Why? What is the risk? BPM: Different payment sources. We don’t want exposure to one client to pay us. It’s nice spreading the risk between two players.

STV: Have you learnt that through bitter experience? BPM: Yes, we did. STV: What about the other provinces? BPM: The Western Cape is new to us but Gauteng will be our core business for some time to come. Fleurhof is 9600 units where we’ve completed about 1490 this year and in excess of 2000 units under construction with Fleurhof, the Jabulani hostel and CBD redevelopment – so we still have a lot of construction in Gauteng.

STV: What about the Free State? I believe you have something on the go there? BPM: That was small – we went into the Free State with a project that didn’t require marketing efforts, so we didn’t open fully fledged offices there. In the Western Cape, where marketing was involved, we had to open a fully fledged office.

STV: These numbers sound big – but it’s a drop in the ocean if we look at what Tokyo Sexwale said last year that there was a housing backlog of 2,3-million, which suggests growth is infinite at this stage. BPM: The opportunities are out there – no question about that. If you look at the backlog, are we making a dent? If you look at our R8bn pipeline over the next five to six years, we are quite happy. Are we making a difference? A little.

STV: That 2,3-million backlog – is that affordable housing? BPM: That’s only fully subsidised units where human settlements are involved. If we look at the formal housing sector, Absa says there are 1,6-million households that qualify for bonds – but if we take the credit act and bad debt into account, probably 700000 families could qualify for bonds but there is no stock available right now in the market. The third one is the social aspect where the government made a commitment to deliver 80000 units over the next four years – so our 30000 units over the next five years is a drop in the ocean.

STV: Do you have the capacity to take advantage of the opportunities out there? This suggests that Calgro M3 has to grow in a very big way to take advantage of these opportunities.

BPM: No question, and we will be growing this year. We are going to control the growth – the biggest risk to the company is uncontrolled growth. We are hesitant to move into our third and fourth provinces at this stage – we want to stabilise the Western Cape before we move on. Yes, the growth is there. We see one of the growth aspects in the company as the marketing aspect – remember, we are not a construction company in itself, as we only build something that’s been sold, so the more you can sell, the more you can build because we build for ourselves.

STV: Remind us what the relationship is? You say that you’re a marketing company to a certain extent – do you have to convince the banks to provide finance for the projects? How does it work exactly?

BPM: Yes, it’s a continuous effort trying to convince the banks. What we currently do is buy agricultural land and take it through the town planning process where we put in services and then sell it to someone, whether that’s to the government with a fully subsidised agreement or on the open market to anyone who can afford to buy a unit. Only once it’s sold do we go to the construction phase and then hand over the end users. We take the turnkey route where we start with agricultural land and then ultimately hand a key over to someone. STV: You do have a construction aspect to the business, though? BPM: Yes.

STV: Do you have enough skills there to take advantage of new projects that come along? BPM: Yes, skills will always be an issue and we know there is unemployment – especially in the areas we work – but “employability” is an even bigger issue. Skills training is always there – we have continuous skills training programmes to better people and train them to contribute towards the projects.

STV: What are the major risks in the next 12-18 months and the major opportunities?

BPM: Uncontrolled growth and growing too fast. We are containing our growth to the Western Cape at this stage – that’s the biggest issue. Then, if we look at general risk, there’s how the financial institutions are playing, and are they providing 100% bonds? Currently all four major institutions are – but there’s no guarantee that will last forever. Secondly, exposure to government – the question that’s always there is, “Are we getting paid?” Yes, we are getting paid, but it’s just a question of when, so we are spreading our risk between two provinces and two metros.

STV: The opportunity? BPM: The opportunities are out there if we can convert the pipeline we’ve built up over the past few years.

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