SUM - Summerset Group

[limmy]

Maybe in in the short term. As our friend Ben said, in the short term the share market is a voting machine, in the long term it is a weighing machine.

I’m not interested in the short term.

Good point.

[James108]

Sage advice from Ben

But have you considered that with RYM and SUM it’s the weighing machine that’s in play

Relativity etc been in place quite a long time ...the voters have had their say and the scales have settled down and measuring a fair intrinsic value for both (taking everything into account)

But I feel you will disagree

I actually think that is fairly likely. All I’m saying is that if either rym or sum outperform the other going forward (not saying one will) eventually the share price will follow.

[Beagle]

Over time investors know that share prices of established profitable companies follow earnings and trade at a multiple of earnings based on the companies track record and investors perceptions of earnings growth in the years ahead. Obviously there are some exceptions like when companies trade with a potential takeover premium but as a general rule this principle should be a fundamental foundational principle of any prudent investors stock selection criteria as its fundamental to generating outperformance over time.

At present I think the market thinks that RYM is going to have a couple of big years in term of earnings growth but the fact of the matter on any objective analysis is that SUM's earnings growth on an average basis since it listed more than 6 years ago has substantially outstripped RYM's earnings growth over the same timeframe.

Some investors have come up with a relativity theory they think will hold water going forward. While I accept that RYM have the premier growth track record in terms of consistency since listing in 1999, (19 years) over time in the future there is clearly more potential for SUM to build further credibility (on their existing highly credible track record) and therefore some PE expansion is possible as they prove their ability to grow earnings over the next 4 years and then show a full decade of growth.

On the other hand RYM have nothing further to prove and I would argue PE expansion over time is highly unlikely. When you then consider their relative earnings growth rate and the fact that they operate is ostensibly the same sector (with different themes) over time on the balance of probabilities SUM looks like the better bet both on the basis of faster earnings growth and the possibility of PE expansion.

Disc: There is real money behind this post and I recently added to my SUM stake whereas some other people who support a relativity theory may not be invested in either stock at present, (make of that what you will).

In the extremely unlikely event that this relativity theory continues to hold water over the years ahead both SUM and RYM shareholders will approximately do equally well. For SUM shareholders then, it would appear to be heads you do extremely well and tails you still do handsomely well over time. Any way you crunch the SUM's that's an attractive proposition and investable case especially at a material discount to the market PE when their average growth has been dramatically better than market average. SUM stocks are investing 101... made very easy. On the other hand RYM's forward PE looks very stretched at present but each to their own and good luck to RYM shareholders.

[Maverick]

Now that's the quality kind of post that sharetrader is all about. I get it that people get excited or upset when a share price changes and want to "chat" about it but I've always liked sharetrader because of the well presented options like this are put forward.
Cheers Mr Beagle for taking the time.

[Beagle]

Perception is probably the key word mate. The perception of RYM shareholders is that the company can do no wrong. Its proved throughout the GFC that it can grow underlying earnings consistently which is no easy feat. They seem to have an edge when it comes to getting planning consents too. Shareholder perceive that perhaps because of the robustness of their business model RYM can grow underlying earnings at ~ 15% per annum indefinitely so are prepared to accord a Ben Graham multiple to this company.

On the other hand investors perhaps perceive that SUM companies still need further proof even after 6 years of high growth and another one forecasted this year that their business model is anywhere near as robust as RYM's ? I think what's crystal clear is it takes a very long time to earn the market's trust...maybe there's a free lesson there for Arvida and OCA shareholders who are hoping for quick PE multiple expansion ? (Disc: I trimmed my OCA position slightly this week pending what the elephant in the room decides to do).

Over the long haul I still believe the market is a weighing machine, not a voting machine. It sure was a voting machine this week !

[winner69]

Re Beagles last few posts I always found this graphic fascinating

Is the S&P500 but I would hazaed a guess that it would be similar for the NZX as the 'perceived' irregularities between RYM amd SUM ...and other cases


There is no correlation between EPS growth and PE ratios (for the stocks on the S&P500)

The conclusion is that EPS growth is a pretty useless guide to 'value'

[Beagle]

Very short period of time. Ben Graham would argue such a short time frame is woefully insufficient to draw any conclusions. Something over the last 30 years including the GFC and bust of the dot com and tech bubble might give a more conclusive indication.

So if you believe the relativity theory do you or Couta1 own many RYM shares ?...i.e. do you have serious money behind your theory like I do with mine ?

Actually I remember you posting a graph that showed in the early years the average PE of SUM was 27 which wasn't all that different to RYM.

I believe earnings growth and SP are correlated and provide this example as a case in point. As discussed SUM have enjoyed much faster earnings growth than RYM since listing. Over the last 5 years here's how that been represented in their relative SP performance chart.jpg I note RYM have not doubled, just over 90% and that's probably because their eps growth has averaged slightly less than the 15% per annum to justify a doubling, whereas SUM is up just on 145%.

This is the maximum timeframe allowed by the supercharts of ANZ securities but if you can find the data I would love to see a comparative graph of the two for the entire period since SUM was listed (December 2011 from memory).

[Maverick]

Comparing Pe /growth on all the stocks on the s&p 500 is a bit broad I suggest. On that same chart in NZ might be ATM , XRO , SNK And RBD THL gMT. So in order words the business s are so diverse that they are incomparable.
However, graphing only Rym, sum ,oca and arv all in the same sector then there is totally a correlation (when considering length of time listed)

[couta1]

Very short period of time. Ben Graham would argue such a short time frame is woefully insufficient to draw any conclusions. Something over the last 30 years including the GFC and bust of the dot com and tech bubble might give a more conclusive indication.

So if you believe the relativity theory do you or Couta1 own many RYM shares ?...i.e. do you have serious money behind your theory like I do with mine ?

Actually I remember you posting a graph that showed in the early years the average PE of SUM was 27 which wasn't all that different to RYM.

I believe earnings growth and SP are correlated and provide this example as a case in point. As discussed SUM have enjoyed much faster earnings growth than RYM since listing. Over the last 5 years here's how that been represented in their relative SP performance chart.jpg I note RYM have not doubled, just over 90% and that's probably because their eps growth has averaged slightly less than the 15% per annum to justify a doubling, whereas SUM is up just on 145%.

This is the maximum timeframe allowed by the supercharts of ANZ securities but if you can find the data I would love to see a comparative graph of the two for the entire period since SUM was listed (December 2011 from memory).

Actually I have had some very serious money in both RYM and SUM over the years as well as working at the coal face of both companies for a long time. As I feel that OCA has the most upside out of the three over the next few years, I'm waiting patiently to take an XXXOS sized position in the company once the Elephant takes a nap. PS-HaHa Beagle, in the extremely unlikely event that the relativity theory continues to hold water, more like in the extremely unlikely event that it doesn't continue to hold water,after all it's been right for near 6 years.Lol. PPS-Dont forget the OCA part of the theory which says it should be around $1.30, so it's undervalued aye.

[winner69]

Comparing Pe /growth on all the stocks on the s&p 500 is a bit broad I suggest. On that same chart in NZ might be ATM , XRO , SNK And RBD THL gMT. So in order words the business s are so diverse that they are incomparable.
However, graphing only Rym, sum ,oca and arv all in the same sector then there is totally a correlation (when considering length of time listed)

Wouldnt it be a totally negative correlation - higher eps growth lower the pe - that’s what the discussion is about

But oca and arv not really been around long enough but most punters would say high growth and below average pe