SUM - Summerset Group

[oldtech]

Thanks for taking that so well mate and sorry I don't have the time to reiterate my thinking again. Can I suggest you have a look at my posts shortly after the annual result release in very late February. Somewhere in there I gave my reasons for underlying profit forecast of $100m this year which is 44.5 cps and a forward PE of 15.5. Happy to stick with that forecast at this stage. You need to garner an understanding of the difference between underlying profit and reported profit (international financial reporting standards, IFRS) which has been discussed in detail before too.
Happy hunting

Good post BP.

All good, thank you for the additional info and suggestions!

[BobbyMorocco]

I know one quarter's disappointing results is not the end of the world but I'm struggling to put a positive spin on these latest sales figures.

At the end of 2017 we were expecting SUM to have delivered and sold 450 new units for the year. They were only able to sell 382 of them, meaning there were 68 left over to sell this year. I would have then expected that the 1st quarter sales numbers to be significantly higher than what they are. They've only sold 68 new units. The same new units that we expected them to sell last year?

68 new units sold is less than have managed to sell in any of the past 8 quarters. They sold 414 new units in FY16 and 382 in FY17. Now they've started the year selling 68? This is not growth! They say sales will pick up over the course of the year and yes they certainly need to if they are going to sell 400+ new units this year.

House/unit prices also look as if they are not going to increase in value as much this year as they have done over the past few years, so if they don't increase the number of units they are selling then where is this growth going to come from?

45-50% growth in underlying profit over the past six years has certainly been nice, but surely some of that has been fueled by the huge increase in house prices we have seen over the same time frame. Now I don't think that sort of growth can continue. I was expecting underlying profit to be around 100m for the year, but these figures have me wondering if that needs to be adjusted downwards a touch..... I'm off to crunch some numbers.

[winner69]

I know one quarter's disappointing results is not the end of the world but I'm struggling to put a positive spin on these latest sales figures.

At the end of 2017 we were expecting SUM to have delivered and sold 450 new units for the year. They were only able to sell 382 of them, meaning there were 68 left over to sell this year. I would have then expected that the 1st quarter sales numbers to be significantly higher than what they are. They've only sold 68 new units. The same new units that we expected them to sell last year?

68 new units sold is less than have managed to sell in any of the past 8 quarters. They sold 414 new units in FY16 and 382 in FY17. Now they've started the year selling 68? This is not growth! They say sales will pick up over the course of the year and yes they certainly need to if they are going to sell 400+ new units this year.

House/unit prices also look as if they are not going to increase in value as much this year as they have done over the past few years, so if they don't increase the number of units they are selling then where is this growth going to come from?

45-50% growth in underlying profit over the past six years has certainly been nice, but surely some of that has been fueled by the huge increase in house prices we have seen over the same time frame. Now I don't think that sort of growth can continue. I was expecting underlying profit to be around 100m for the year, but these figures have me wondering if that needs to be adjusted downwards a touch..... I'm off to crunch some numbers.

I think they may have reached new build capacity at around the 350/400. This does mean that the planned building program will just longer = good solid profits for many years to come from new builds

The huge increase in property prices over the last few years has to a large degree still to be realised ...the embedded value beagle talks about. That benefit will come out in the next few years as resale’s are made - they’ll be making heaps more in selling an unit this year than last year. It’s that which will underpin ‘earnings growth’ even if sales increase that much.

[BlackPeter]

I still like the chart I posted earlier .. hard not to say trending down of late

Depends on your definition of a downtrend ....

Just borrowed your graph so people don't need to search for the original post:

Attachment 9604

Just looking at your new sales - if this is not an uptrend, than I don't know what an uptrend is - I do see higher lows and higher highs. I am sure you realize that trends never run in straight lines and neither in exponential curves ... and the SUM sales trend is no exception.

I do see constant growth in "new" sales overlaid by a roughly 2 year cycle (would be interesting to understand where this is coming from). Following this pattern - Q1-2018 is (following 1Q16 and 1Q14 and 4Q11) supposed to be another local minimum.

Obviously - if the weakness continues into the coming quarters (are we running out of old people?), than sure - we would have a trend change, but at this stage I see them quite on target ;

As well - if you add the new sales and the resales (and this is their real income, not the new sales alone), than the graph looks still more uplifting ... call that a breather if you like - but a downtrend?

SUMtot.JPG

[winner69]

BP ...I did say trending down ‘of late’ and not just for one quarter and yes long term still trending up ....but then so were Metro Glass profits eh

[winner69]

SUM will still make about $100m underlying earnings in F18

No worries there

[jimmybuffett]

are we running out of old people?

LOL, not a question I thought I would ever hear asked.

[Beagle]

They built a lot of care suites in the last quarter of 2017, Ellerslie it was a block of about 70, if I remember correctly.
As they've outlined in the quarterly sales result these can take longer to sell as people generally move into a supported living care suite when the need arises, its generally not a lifestyle choice they make.

I don't think the sky is falling just because they built a lot of care suites that might take longer than independent living units to sell. Just means their holding costs might be a little higher.
Their average cost of funds is very low so I don't expect any material impact on underlying profit it if takes a few quarters to clear stock.

At times like this I tend to reflect on the fact that the evolution of a companies abilities is not a five minute process. It takes a process over many years whereby they learn from past mistakes and success's. The undisputed fact is that they have grown underlying earnings at a phenomenal pace in their first six years of operation which shown they've learned a lot.
It shouldn't come as a surprise to anyone that this year's growth in underlying profit will probably be less than last year.

As for the real estate market...there's always prophets of doom saying the boom is coming to an end. We've had that debate plenty of times on this thread and others.
The FACTS however are that on a national basis the market continues to show strong growth with latest figures out yesterday showing a national average increase of 7% for the year to March 31 2018.

Business as usual...

[percy]

Great businesses have poor even terrible years.[I am thinking MFT]
Poor businesses can have good years.{FBU would be a good example].
As serious investors we must work out which is which.
In my opinion SUM is an excellent business.

[Beagle]

Great businesses have poor even terrible years.[I am thinking MFT]
Poor businesses can have good years.{FBU would be a good example].
As serious investors we must work out which is which.
In my opinion SUM is an excellent business.

Good point Percy and agree 100% but this is just one quarter so no need whatsoever for any soul searching at this stage. SUM's worst year, if you can call it that was when they grew underlying earnings by 10% and the average is about 45%. I'm expecting 20-25% underlying earnings growth this year, (which is far from shabby). Growth will be driven mainly by increased resale level's at significantly higher level's of profit per unit based on about $150K per unit embedded value v $117K per unit last year, (both figures from memory).