Speaking of top dog's mate. This top dog reckons you have a fair point and RYM probably always trade at a big PE but 14 is too cheap for SUM. That's a PE that's appropriate for a low growth slightly "doggy" company for which sadly for the NZX, there are many.
Disc: Getting my snout into SUM more..my rating BBB (Beagle busy buying)
Hey beagle ....why do really think a PE of 14 is way too low for SUM and while you at it what you think is a ‘more reasonable’ multiple — probably the answer is what ‘discount’ to RYM’s PE is appropriate.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Some sums to think about. Since listing in late 2011 Summerset in February of each subsequent year have announced underlying earnings growth for the calendar years as follows :-
2011 35% about IPO forecast announced February 2012
2012 88% RYM up 19%
2013 46% RYM up 18%
2014 10% RYM up 15%
2015 55% RYM up 16%
2016 50% RYM up 13%
2017 44% just announced. Mid point of 2018 forecast $205m RYM up 15% to be confirmed late May 2018
Building a highly credible profit growth track record where a current year PE of just 14 is too cheap really ? Judge for yourself.
Originally Posted by winner69
Hey beagle ....why do really think a PE of 14 is way too low for SUM and while you at it what you think is a ‘more reasonable’ multiple — probably the answer is what ‘discount’ to RYM’s PE is appropriate.
You know me mate, I'm a numbers man. The underlying EPS growth figures speak for themselves, see blue comparative RYM underlying EPS growth figures above
Perhaps the real question should be given the FACTS about growth, does RYM deserve to be at a PE premium to SUM at all ? Could we see SUM's PE rerate close to RYM's PE over the next couple of years as SUM continues to demonstrate its ability to be consistently the fastest growth retirement company in N.Z. ? Certainly I would argue they're building a very strong and highly ccredible record for fast growth.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
They both have solid pipelines of future developments they're working on. SUM has a land bank that will give it six years of development at the current build rate of ~ 450 units a year.
The results to date have indeed been phenomenal, that's exactly the right adjective to use to describe them. A lot of that has been working around refining their development model over the years and lifting their build rate. Development margins have expanded from several years ago at 15% to 27+% in the most recent result.
Further, last year we saw the build rate increase from ~ 400 the year before to 450 this year, so a 12.5% increase in the number of units built.
The short answer is I am expecting some moderation of the underlying earnings growth rate in the 2018 year. Its very early in the year to stick my neck out and make a prediction but the other day I commented that my preliminary modeling sees them going close to $100m in underlying profit this year for circa 20-25% growth in 2018. My thinking is the vast majority of this will be because of higher numbers of resale's, (they have more stock than last year after building another 450 units, and higher realized profits on resale, embedded value 31/12/2016 was about $114K per unit and is now ~ $150K per unit, both figures from memory.
Looking further out, in a behind the paywall article on NBR the other day Julian Cook hinted at an expansion in the build rate in the future and mentioned they are keen on expansion into Australia. You don't get all that many chances in your lifetime to buy growth shares with a very strong track record like this one on a PE of just 14.
In 30 years of investing I struggle to recall a single other example of a growth share with this sort of stellar track record trading on that forward multiple.
Opportunity knocks ?...you be the judge. The final thing to consider when looking at that multiple is the strong prevailing demographic tailwinds for the sector for the next 20-25 years.
Winner reckoned a while back the average PE this company has traded on since listing is 27. Never mind the emotion / sentiment of RYM do this or that better and they should be top dog, the earnings growth FACTS suggest this company is undervalued and under appreciated by the market.
Last edited by Beagle; 27-02-2018 at 05:33 PM.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
You may be getting your wish --- the SUM PE is slowly creeping up. Based on SUM achieving $100m underlying earnings for FY18 but only taking 1/2 of that at the moment (1/2 year like) I have them on a PE of 16.4 at the moment
What's intriguing is that is that the PE has been in a downtrend since 2014 when it was over 30. In the same period Ryman's PE has also declined. Maybe it is actually a sector thing -- interesting eh
The declinings PE hasn't been that obvious on the SUM price chart (compared to Ryman) because SUM earnings have been growing at much greater rate
But whatever there has to be a good 'reason' for such trends....wonder it is and wonder what it means? I have my theory.
Anyway an interesting chart (its based on underlying earnings, just for you)
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Add to that restrictions on foreign labour (builders) as well as costs associated with pay equity / minimum wage / triangular employment relationships there's a perfect storm brewing for Labour as NZ business starts to feel the pinch
Originally Posted by Beagle
Speaking of top dog's mate. This top dogreckons you have a fair point and RYM probably always trade at a big PE but 14 is too cheap for SUM. That's a PE that's appropriate for a low growth slightly "doggy" company for which sadly for the NZX, there are many.
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