Residential developer Balwin expects over 50% plunge in earnings

As high interest rates bite.

Balwin Properties flagged a more than 50% plunge in earnings for its half-year to the end of August on Thursday, in a trading statement and business update published on the JSE.

It comes amid more than decade-high interest rates in SA, but next year is likely to be better with the South African Reserve Bank having commenced its rate-cutting cycle in September.

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“Consolidated earnings per share and headline earnings per share [Heps] for the period ended 31 August 2024 is expected to decrease by between 54% and 59% over the prior corresponding period, translating into a decrease from the prior financial period’s 37.93 cents per share to a range of between 15.55c and 17.45c per share respectively,” it noted in the Sens filing.

The residential sectional-title developer known for its mega estates like Munyaka Waterfall (near Waterfall City) and Mooikloof Eco Estate in Pretoria is set to release its latest interim results at the end of October.

“Activity in the residential property sector remained under significant pressure during the interim period owing predominantly to the prolonged high-interest rate environment,” the group said.

“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,” added Balwin.

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“The recent 25 bps reduction in the prime interest rate announced on 19 September 2024 is the first positive step for an anticipated recovery in the residential property market,” the group noted.

“The reduction was, however, post the reporting period and accordingly had no impact on the results presented. 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 Monetary Policy Committee meetings, provided that the macro-economic environment remains stable.

“These expected [interest rate] reductions are likely to materially improve the demand in the residential housing market,” Balwin said.

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“Owing to Balwin’s conservative construction approach in response to the challenging trading conditions, the group expects to recognise approximately 640 apartments in revenue for the reporting period [August 2023: 834],” it pointed out.

“The annuity business portfolio has continued its pleasing performance and increased its contribution to group revenue to approximately 8% [August2023: 4.7%].

“The company anticipates its gross profit margin derived from the sale of apartments to marginally reduce to 23% [February 2024: 24%]. The group’s gross profit margin, however, is expected to increase to approximately 32% [February 2024: 28%] owing to the increased contributions from the annuity businesses,” the company added.

Balwin’s share price

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