IFRS v Underlying Earnings
International Financial Reporting Standards (IFRS) require property companies to revalue their portfolio each year to current market value.
IFRS reported profit includes all property revaluations and does not represent the underlying cash earnings of the business. This measure underlying earnings, referred to by all the retirement village operators is the measure all professional analysts use to compare the earnings across the sector because this measure excludes the annual property revaluation but includes all cash earnings from license to occupy resales, new unit sales and the development margin thereon and any profit from the operations of the villages.
Underlying EPS was 25.6 cps for the year ended 31 December 2016. I am forecasting underlying EPS of 32 cps for 31/12/17 and the average analyst forecast is for underlying EPS of 31 cps. Based on average analyst forecast SUM currently trades on a current year PE of 15.6 which is less than the NZX50 average.
Their current dividend payout ratio is 30% of underlying earnings. Dividends are unimputed and as this company is growing strongly it is unlikely that they will increase this percentage higher anytime soon. People looking for a good dividend yield have a wide range of better fully imputed dividend yielding shares to chose from so might like to consider looking elsewhere.
Some people persist in using full IFRS earnings. I am not saying they are wrong per se, but this can and probably will give a disingenuous view of how earnings may be tracking / growing in the years ahead. As Bjauck has posted above, I can confirm RYM grew underlying earnings before, throughout and after the GFC.
I do not expect any moderate decline in house prices this year to affect SUM"s underlying cash earnings and am projecting 25% underlying earnings growth this year down from 50% last year and 55% the year before that.