Tongaat-Hulett, property giant. That's hard to imagine because Tongaat's property arm, Moreland, contributed only R65m of the group's R3bn six-months' revenue to June.

Tongaat's 2002 balance sheet values its property at a mere R250m of R4,2bn in fixed assets. And after 11 years of pouring cash into development, Moreland managed earnings of R20m, only 2,5% of the group's earnings to December 2002.

But its earnings for the first six months of this year were R20m and revenue was up 30%, the fastest growing in the group. Group CEO Peter Staude concedes Tongaat's 13 000 ha of land is grossly undervalued. After all, in a single deal announced last week, Moreland sold 50% of its stake in the 400 ha Zimbali golf estate for nearly R150m, effectively valuing the undeveloped land at R750 000/ha.

The buyer was IFA, a Kuwaiti company that will partner Moreland in further development of upmarket Zimbali. Houses there are already selling at upwards of R10m each.

Nobody is suggesting all Moreland's 13 000 ha are as valuable as Zimbali. But 8 000 ha are within the prime metropolitan development area between Durban and Ballito, where unserviced land with potential for residential zoning is going at R200 000/ha, and even higher for commercial.

Staude says the company believes its property is worth more than R1bn, or R77 000/ha. Even at that rating, its property value could equate to one-third of Tongaat's present R3bn market cap. It's probably worth twice that.

A buyer would not only be getting the land. SA's property development industry has been worn down by more than 30 years of political and economic turmoil. In 1969, there were 32 JSE-listed property development companies. Now there is only RL Props. Moreland, under CEO Gordon Hibbert, is perhaps the only major developer in SA with residential and mixed-use expertise.

Moreland is a dominant force in Durban and on the North Coast. It has built a reputation as a highly skilled developer, if conservative (not a bad thing in property), while exploiting only 1 000 ha of Tongaat's land over 10 years. This may seem a paltry achievement but property development swallows large loads of cash in its initial stages. Moreland now has the momentum of positive cash flow.

Most development has been in three landmark projects: Mount Edgecombe Country Club, Umhlanga and La Lucia Ridge. The area has become Durban's decentralised office node and includes the giant Gateway centre and Zimbali.

Each project has been a great success and become the standard against which KwaZulu Natal coastal development is measured, including infrastructure provision and care for the environment.

Secondary developers have so far spent R10bn on further development and end users have created an estimated 30 000 permanent jobs.

Moreland is also doing business beyond Tongaat's properties. It has been called in by Durban authorities to direct the development of uShaka, Durban's answer to Cape Town's V&A Waterfront, and of the site for Afrisun KZN's Sibaya Casino resort at Umdloti.

But it is Tongaat's own land that will be the prime generator of Tongaat's property business. Zimbali could produce R400m or more in revenue in the next 5-7 years. The Mhlanga Forest Estate, just north of Umhlanga, will produce R200m in 2-3 years, when approved.

At R30/share and a dividend yield of 7,7%, Tongaat is showing the strong rand's effect on its primary sugar and aluminium exports. But investors need to take note of the potential for group growth through some overlooked property jewels.

Financial Mail