SUM - Summerset Group

[limmy]

You know me Forest, I'm a numbers man.

RYM average growth rate in the last five years 14% per annum.
SUM average growth rate in the last five years 36% per annum, assuming they make at least $114m in 2019 to be reported in February 2020.

Each to their own but I reckon those numbers speak for themselves.

Mr. Beagle, which financial metric do you calculate the growth rate from ? Is it the growth in operating revenue ? I'm trying to learn how to calculate intrinsic value, and the formulae available from my Google search mention growth rate. However these explanations don't say which measure. I'm assuming it's the growth in revenue rather than NTA, or other measures like growth in the EPS.

(Please excuse this Engineer trying to learn about Financial calculations) Thanks.

[Beagle]

Yea, when you put it that way SUM has done a lot better.
What is your prediction for SUM underlying growth rate in the next 5 years?

Good question and thank you for asking it. Headlights on full beam, so too speak, my thoughts are:-
SUM have a vast land bank well spread geographically throughout N.Z. and they are expanding into Australia. They have stated they want to increase the build rate to 600 per annum here with the next 2-3 years from 354 last year. Expansion into Australia is on top of that. They have substantial embedded value in their existing villages and I expect resale volumes and resale profits per unit to climb significantly in the years ahead. Development margins as per the company's view are expected to moderate in the years ahead.

Overall going forward I expect them to continue to outpace RYM's growth over the next 5 years, but not buy as much as the last 5 years. I think an average growth rate of 20%-25% is attainable for the next 5 years. SUM are on a forward 2020 PE by my estimate of just 14 and RYM are on a forward PE of 31.

[forest]

OK, in 2017 SUM delivered 68 more residences than they sold, in 2018 they delivered 115 more residences than they sold and just in 2019 there were 25 more build than sold.
So as a numbers man are you not concerned about the imbalance of new builds compared with new sales?

[Beagle]

OK, in 2017 SUM delivered 68 more residences than they sold, in 2018 they delivered 115 more residences than they sold and just in 2019 there were 25 more build than sold.
So as a numbers man are you not concerned about the imbalance of new builds compared with new sales?

That is my one area of concern with SUM. On the other hand the vacancy rate at all their existing villages remains very low.
Real estate market only really accelerated in Q4 in 2019 and properties don't always settle for a period of a few weeks. I am hoping for strong sales numbers in Q1 2020 from people who sold their homes in late 2019. That said one or two of SUM's villages do not appear to be very fast sellers. To what extent one lets that detract from their otherwise stellar results is for each shareholder to decide for themselves.

Poking the finger around the other way, its clear RYM's profit growth has been below their stated mid term objective of 15% per annum by a material amount, (just 11.5% last year and not the first time they have missed by any means) and is forecast, (at mid point of forecast) to be just 13% in 2020 as well so maybe they aren't building enough units ?

Looking at their respective growth rates which seems to be the best approach ?

[forest]

That is my one area of concern with SUM. On the other hand the vacancy rate at all their existing villages remains very low.
Real estate market only really accelerated in Q4 in 2019 and properties don't always settle for a period of a few weeks. I am hoping for strong sales numbers in Q1 2020 from people who sold their homes in late 2019. That said one or two of SUM's villages do not appear to be very fast sellers. To what extent one lets that detract from their otherwise stellar results is for each shareholder to decide for themselves.

Poking the finger around the other way, its clear RYM's profit growth has been below their stated mid term objective of 15% per annum by a material amount, (just 11.5% last year and not the first time they have missed by any means) and is forecast, (at mid point of forecast) to be just 13% in 2020 as well so maybe they aren't building enough units ?

Looking at their respective growth rates which seems to be the best approach ?

Depending which growth rates you are looking at, new sales for both SUM and RYM have been going backwards since 2017.
RYM has given a plausible explanation for that reduced new build, not to sure about how plausible SUMs is.
However resales for RYM have been going up app 14% since 2017 and 7% for SUM.
This 7% increase over 2 years makes me wonder if the churn is lower than expected.

I like the RYM approach a little better, controlled steady growth. Often promoting long term employees to management level. Having as much expertise in house as possible. Maybe boring as the name of this thread would suggest but predictable.

[Beagle]

RYM average growth rate in the last five years 14% per annum.
SUM average growth rate in the last five years 36% per annum, assuming they make at least $114m in 2019 to be reported in February 2020.

For the sake of complete clarity, (as I am sure you probably already know), this is the growth rate in underlying earnings per share for the last 5 years.
Yes I think the churn has been a lower than expected and I am expecting this to revert to normal level's going forward and with quite substantial IFRS valuation gains in previous years, growth in resales both in volume and realised profit per unit will be a key driver of SUM's ongoing strong growth in underlying profit in the years ahead.

To me as a numbers man, the number that really matters is underlying earning per share and the rate of growth in same. RYM's growth in eps in recent years is something I find quite underwhelming to be honest and certainly not something I would pay a forward PE of 31 for. I think SUM is dirt cheap on a forward PE of about 14, (market average is about 30 and market median about 19) with a future average expected growth rate in the 20-25% rate for the years ahead. Hope SUM are not next cab off the rank for a takeover offer, that would be very disappointing.

Even if SUM's growth rate slows to an average of 15% per annum average for the next 5 years on a forward PE of 14 they're still a bargain at a PEG ratio of just on 1.

[forest]

RYM average growth rate in the last five years 14% per annum.
SUM average growth rate in the last five years 36% per annum, assuming they make at least $114m in 2019 to be reported in February 2020.

For the sake of complete clarity, (as I am sure you probably already know), this is the growth rate in underlying earnings per share for the last 5 years.
Yes I think the churn has been a lower than expected and I am expecting this to revert to normal level's going forward and with quite substantial IFRS valuation gains in previous years, growth in resales both in volume and realised profit per unit will be a key driver of SUM's ongoing strong growth in underlying profit in the years ahead.

To me as a numbers man, the number that really matters is underlying earning per share and the rate of growth in same. RYM's growth in eps in recent years is something I find quite underwhelming to be honest and certainly not something I would pay a forward PE of 31 for. I think SUM is dirt cheap on a forward PE of about 14, (market average is about 30 and market median about 19) with a future average expected growth rate in the 20-25% rate for the years ahead. Hope SUM are not next cab off the rank for a takeover offer, that would be very disappointing.

Even if SUM's growth rate slows to an average of 15% per annum average for the next 5 years on a forward PE of 14 they're still a bargain at a PEG ratio of just on 1.

We started of discussing which was the better company, and I said I like Gordon from RYM a little better.
I agree with you that at current share prices SUM could well be a better investment in the near future.

[winner69]

We started of discussing which was the better company, and I said I like Gordon from RYM a little better.
I agree with you that at current share prices SUM could well be a better investment in the near future.

Maybe I should just asked ‘Who has the greater halo effect’ - Earl, Gordon or Julian

[Beagle]

Just rounding out this discussion, here is the six year summary of RYM's results and you will see new sales for them are quite underwhelming in 2019, in fact considerably lower than 3 years ago and lower even than 6 years ago ! Gearing is steadily increasing over the years too. https://www.rymanhealthcare.co.nz/ab...al-information, scroll down a bit to the 6 year summary, which I find most underwhelming.

On the leadership thing they broke the mould when Simon Challis became CEO and there's unlikely to be another one as good as him, ever.

There's nothing in RYM business plan, growth rates or any other aspect of them, that on the FACTS, justifies a higher PE than SUM.
SUM's vastly higher underlying eps growth rate on the other hand does justify a higher PE than RYM.

I stick to the numbers and facts and leave the "which is the better company for ESG reasons" to others. This has been a good debate because it got me looking at RYM's 6 year history and honestly, there is nothing in there that impresses me. Even total numbers of units sold including resales have only marginally increased from 5 years ago ! No wonder their average underlying profit growth in the past five years has been so miserable, lower even that MET. If all MET who have been growing underlying earnings faster than RYM are worth is last years NTA, then what is RYM really worth ?
RYM massively overrated by the market in my opinion.

The results under Julian Cook's leadership speak for themselves. I like CEO's who deliver results.

[winner69]

With all this discussion re SUM growth etc I was waiting for t_j to remind us that H1 NPAT was down 4% on prior year and from their reports RYM was up 11% and ARV was up 47%