Our opinion on the current state of BWN

Balwin Properties (BWN) is a developer of secure sectional title properties in South Africa. The company is now turning its attention to renting out some of the properties that it develops to improve its income. The company reports strong demand for its units and is also moving into supplying solar power and internet fibre. The share was listed 5 years ago at R10 per share but trades today for 270c. Obviously, the property development market is a function of consumers' disposable income and the state of the economy. The last three years have been very tough for consumers and the economy has been a full-blown recession. In our view, the move to rental is a good one as it will build up a passive income which can be used to meet fixed overheads and contribute to profits. Balwin owns 25% of Balwin Rental which has the right to buy as many as 4544 units developed by Balwin. This should help to stabilise the company's income. Eventually, it is expected that Balwin Rentals will be listed. On 4th October 2020, the company launched its Mooikloof Mega City construction project as a R44bn public/private partnership aimed at middle income South Africans who earn between R3500 and R22000 a month (known as the "gap housing market"). This caused the share to rise by 13%. In its results for the six months to 31st August 2023 the company reported revenue down 25% and headline earnings per share (HEPS) up 4%. The company's net asset value (NAV) increased 10% to 849,16c per share. The company said, "Group revenue for the reporting period amounted to R1.2 billion (H12023: R1.6 billion), a reduction of 25% over the prior comparative period, reflecting the challenging conditions in the residential housing market. As a result of ongoing macro-economic headwinds and reduced consumer demand, Balwin recognised 834 apartments in revenue for the period, a 39% reduction from the 1 360 apartments recognised in revenue for the prior comparative six- month period". Technically, the share has been in a long-term downward trend, but now looks to be moving up based on the most recent results. We believe it will continue to recover as the economy recovers. It is trading for 27,3% of its net asset value (NAV) - which looks really cheap.