Balwin takes a massive hit

Property developer Balwin has suffered a major blow to its earnings, with profits down almost 60% for the six months ended 31 August 2024.

Group revenue dropped 28% to R852.7 million, while profit for the period tanked 57% to R76.9 million. Headline earnings per share sunk 57% to 16.26 cents per share, and no dividend was declared.

“The board’s primary consideration on capital allocation is to reduce the group’s debt exposure. The board will reconsider the declaration of a dividend when reviewing the results for the full financial year,” it said.

According to the group, its operations were hit by the persistently high interest rates in South Africa, which kept the residential market under severe pressure over the period.

“While market sentiment traded positively following the announcement of the Government of National Unity (GNU) and the improvement in macro-economic conditions in the period, this encouraging trend
did not flow materially into the residential property market due to the over-arching high borrowing costs for prospective customers,” it said.

The recent 25 basis point reduction in the prime interest rate announced on 19 September 2024 was the first positive step for an anticipated recovery in the residential property market—however, the reduction came after the reporting period and accordingly had no impact on the results presented.

As a result of ongoing macro-economic headwinds and reduced consumer demand, Balwin recognised 640 apartments in revenue for the period, a 23% reduction from the 834 apartments recognised in revenue for the prior period.

Despite the economic challenges, the group noted that developments under construction continued to increase to R6.5 billion, with construction and development costs increasing as the group gears up for increased activity in the second half of the financial year.

The group said it remains confident about the prospects of its core business, and it anticipates a much better interest rate environment ahead.

“The board is aligned with the general market consensus that the prime interest rate will continue to reduce gradually over the course of the next few MPC meetings, provided that the macro-economic environment remains stable,” it said.

“These expected reductions are likely to materially improve the demand in the residential housing market and enable the group to return to an optimal sales rate and gross profit margin performance.”

Balwin has a development pipeline of approximately 42,000 apartments across the major metropolitan nodes of Johannesburg, Tshwane, Western Cape and KwaZulu-Natal, with a development cycle equating to approximately 15 years

The group is looking to “cautiously introduce” rental developments by using existing land parcels to create a separate rental portfolio, which is a more “defensive asset class” that will diversify the group’s revenue streams and grow annuity income.

“The roll-out of the rental portfolio will be guided by the capital structure implications for the group,” it said.

Read: Big changes to interest rates coming soon in South Africa