The best guide to future profit growth is past profit growth.
Share prices follow earnings per share and anticipated sustainable earnings growth in the years ahead.
Some companies have very little history which renders any attempt to forecast 5 years ahead as little more than wild speculation.
RYM (Note when faced with a difficult exam question with multiple aspects too it, my approach was always to answer the easiest part first)
Pretty sure you want to include RYM in your guesswork.
(Please lets get this straight, forecasting one year ahead is hard work, anything further than that is little more than a partially educated guess at very best).
A useful yardstick for you reference. RYM's stated medium term objective is to grow underlying earnings at 15% per annum and their extremely long track record of doing just that on average gives the most useful benchmark for this sector. Rather conveniently to keep the mathematics relatively simple 15% growth compounded for five years means underlying earnings will double in five years time.
If their forward PE of about 23 stays the same that will translate into a doubling of the share price from its current level.
In my view RYM is fully and fairly priced and an investment in them will likely give a satisfactory market performance over the long haul. I think $20 or thereabouts is quite likely.
SUM
Consistently N.Z. fastest growing retirement stock. Average growth rate over the last 6 years since listing is ~ 45%. This was off the back of significant refinement of their development model and increase in the build rate. Looking forward I expect slower and more steady growth that perhaps might average 20-25% in the five years ahead.
I think the current PE is about 30% below where I see this in a few years time as they continue to prove their development capabilities so we could see PE expansion as well.
$6.80 x 1.225 x 1.225 x 1.225 x 1.225 x 1.225 plus some PE expansion could see them at a similar price level to RYM's indicated above. I hold.
OCA
This is the dark horse of the field with unproven development capability all we have to go on at this stage is the company is confident of meeting its IPO forecast of 8.42 cps for a 40% underlying profit growth on last year's figures. They have a large number of consented developments and their current year PE is just 11.75 so I expect steady profit growth in the years ahead and some improvement in their PE as they prove up their development capabilities. $2 to $2.50 would be my guess. I hold.
MET have a LOT of work to do to prove their development capabilities. I read a LOT into Infratil's decision to sell down their stake in MET last year. They know the company better than anyone on here and are fairly astute asset managers. I think many of MET's assets are slightly compromised and frankly I think its impossible for them to accurately assess the likely remediation cost of their villages that have suffered issues. I expect this company to underperform the sector. Perhaps around $10 in 5 years.
ARV - My preliminary analysis this week showed high single digit underlying profit growth on an EPS basis this year and next. They have been issuing A LOT of new scrip so headline profit will give a disingenuous view of underlying earnings per share profit growth. 70% of their revenue comes from the care sector which is highly susceptible to the serious increase in caregiver wages we've seen and which will rapidly increase in the years ahead. I think its likely this will also underperform. Maybe $2 per share in 5 years.
I see the capital gain potential (and have allocated capital accordingly) as SUM, OCA, RYM, ARV and MET. OCA more speculative than others but potential to surprise favorably is pretty good in my opinion.
Anyone who claims their crystal ball is crystal clear five years ahead should probably give up their day job and take up fortune telling
Originally Posted by Dean007
Wow Beagle .. thank you, great work !
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