Balwin Properties has benefited from semigration despite rising interest rates and a constrained economy, the sectional title developer said on Monday in its interim results.
Headline earnings per share (Heps), a measure of profit that strips out impairments and one-off items, jumped 46.81% to 36.63c.
Balwin upped its interim dividend by just more than one-third to 9.9c.
“This was driven primarily by semigration to the Western Cape and our unique lifestyle offering with a focus on green living,” CEO Steve Brookes said.
Semigration occurs when people move to other parts of SA, often from Gauteng, in search of work or a different lifestyle. This became prominent during the Covid-19 pandemic as people started working remotely.
Balwin was founded in 1996 and listed on the JSE in 2015. It specialises in large-scale sectional title estates for SA’s low- to middle-income population. Estates typically consist of 1,000-2,000 sectional title residential apartments in the targeted nodes of Johannesburg, Tshwane, the Western Cape and KwaZulu-Natal.
Anthony Clark, independent analyst at SmallTalkDaily Research said the increase in Heps was at the upper end of the trading update guideline.
“The most interesting number is the 1,551 units pre-sold into the second half of the financial year — as Balwin traditionally has a much stronger second half as they push to get units built up until the Christmas period so people can move in,” said Clark.
Given the earnings of 47% in the first half, Clark expects a much better second half. Despite Balwin citing macroeconomic challenges, including people wanting to move into smaller, more secure lifestyle apartments with facilities such as fibre and an alternative power supply, all bode well for the company’s future prospect.
On Monday morning, the share price was up 1.17% to R2.72, and had inched up to R2.75 at the close of the JSE.
Clark said when looking at the company’s current rating, he puts the stock at a price-earnings (p/e) ratio of 3.6 times, while its past dividend yield is 7.7%. The p/e is a measure of what the market is willing to pay per share.
“For quite some time now, I’ve stated that this company is extremely good value,” said Clark.
He said the trouble with property companies is that in a rising interest rate environment, they are always vulnerable to market sentiment about its performance.
“Balwin has demonstrated its ability to the market to grow its earnings and tightly manage its costs.”
Clark said Balwin sits with a significant discount to net asset value and a bargain p/e. However, rising interest rates and the fact that the stock is not widely held by institutional investors does not sit well with the market.
With a development pipeline of more than 45,000 apartments across 27 developments over 15 years, Balwin will continue to appeal to a growing urban middle market buying in the R1m-R2.5m price bracket, said Clark.
The number of apartments recognised in its revenue for the period to end-August grew 7.85% to 1,360. Most of these were in Gauteng, with just less than half, followed by the Western Cape, with just more than one-third. Gauteng’s contribution to total revenue from the sale of apartments fell 13 percentage points to 47%.
The revenue of the company, valued at R1.34bn on the JSE, increased by just more than one-fifth year on year to R1.58bn. Profit for the period is up 47.54% to R173m.
The company’s debt position as its loan-to-cost ratio was reduced by 1.5 percentage points to 39.7%.
Brookes said that as long-term investors they will continue to develop in Gauteng, the Western Cape and KwaZulu-Natal, with more focus on unlocking the existing pipeline going forward.
He said they were seeing the most activity for apartments priced at R800,000-R1.8m. Their traditional design is to have three-bedroom units on the ground floor and smaller units located at the top.
Updated: October 31 2022
This article has been updated with new information throughout.
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