Our opinion on the current state of BALWIN(BWN)
Balwin Properties (BWN) is a South African developer of secure sectional title properties. Recently, the company has shifted some focus towards renting out the properties it develops to diversify and enhance its income streams. Despite strong demand for its units, the company has expanded into providing solar power and internet fibre solutions. When listed five years ago at R10 per share, Balwin’s share price has since dropped to 270c. The property development market is heavily influenced by the state of the economy and consumers' disposable income, both of which have been under strain, particularly during the economic recession of the last three years.
Balwin’s decision to increase its rental portfolio is viewed positively, as this will build passive income streams, which can help cover fixed overheads and contribute to profitability. The company owns 25% of Balwin Rental, which holds the right to acquire as many as 4,544 units developed by Balwin, a move that should help stabilize income. There are expectations that Balwin Rentals will eventually be listed separately.
On 4th October 2020, Balwin launched its Mooikloof Mega City construction project, a R44 billion public-private partnership aimed at middle-income South Africans earning between R3,500 and R22,000 per month, often referred to as the "gap housing market." This caused the share price to jump by 13%.
In its results for the year ending 29th February 2024, Balwin reported a 29% drop in revenue and a 48% decline in headline earnings per share (HEPS). Despite the challenges, the company’s net asset value (NAV) increased by 4% to 858.49c per share. The company noted that its annuity business portfolio saw strong growth, increasing its revenue to R132.5 million, which contributed 5.6% of the total group revenue, up from 2.3% in 2023. The group finished the period with a loan-to-value (LTV) ratio of 40.5%.
In a voluntary update on 24th July 2024, Balwin announced plans to expand its rental portfolio to 7,300 units over the next 8 to 10 years, complementing its build capacity of 2,000 to 3,000 units per annum. However, in a trading statement for the six months ending 31st August 2024, the company estimated a HEPS decline of between 54% and 59%, citing ongoing pressure in the residential property sector due to high interest rates.
Technically, Balwin’s share has been in a long-term downward trend. We recommend waiting for a break above this downward trendline before considering further investment. Despite its current challenges, the share is trading at 25% of its net asset value (NAV), which suggests it is significantly undervalued and could present a strong recovery opportunity as the broader economy improves.
Balwin’s decision to increase its rental portfolio is viewed positively, as this will build passive income streams, which can help cover fixed overheads and contribute to profitability. The company owns 25% of Balwin Rental, which holds the right to acquire as many as 4,544 units developed by Balwin, a move that should help stabilize income. There are expectations that Balwin Rentals will eventually be listed separately.
On 4th October 2020, Balwin launched its Mooikloof Mega City construction project, a R44 billion public-private partnership aimed at middle-income South Africans earning between R3,500 and R22,000 per month, often referred to as the "gap housing market." This caused the share price to jump by 13%.
In its results for the year ending 29th February 2024, Balwin reported a 29% drop in revenue and a 48% decline in headline earnings per share (HEPS). Despite the challenges, the company’s net asset value (NAV) increased by 4% to 858.49c per share. The company noted that its annuity business portfolio saw strong growth, increasing its revenue to R132.5 million, which contributed 5.6% of the total group revenue, up from 2.3% in 2023. The group finished the period with a loan-to-value (LTV) ratio of 40.5%.
In a voluntary update on 24th July 2024, Balwin announced plans to expand its rental portfolio to 7,300 units over the next 8 to 10 years, complementing its build capacity of 2,000 to 3,000 units per annum. However, in a trading statement for the six months ending 31st August 2024, the company estimated a HEPS decline of between 54% and 59%, citing ongoing pressure in the residential property sector due to high interest rates.
Technically, Balwin’s share has been in a long-term downward trend. We recommend waiting for a break above this downward trendline before considering further investment. Despite its current challenges, the share is trading at 25% of its net asset value (NAV), which suggests it is significantly undervalued and could present a strong recovery opportunity as the broader economy improves.
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