SUM - Summerset Group

[Mr Slothbear]

I did a site visit at SUM's Hobsonville waterfront village in 2017 and everyone I met seemed very contented...mind you it was a beautiful sunny day, the tide was in and we had just won the America's cup that morning so that might have had something to do with everyone walking around looking very happy

Fact is on an objective basis the numbers of RYM's sales have not been that impressive in the last 5 years given the size of the company.

Yes the selling hasn’t been the issue but they’ve certainly had some constructions issues mainly due to difference in how consenting works between aus and NZ so quite the learning experience. NZ projects get consented as they are built but aussie ones get consented all in one go at the start.

resulted in the significant delay of one or two of the large aussie villages.

[value_investor]

Yikes, bit of a sore result on first glance but there are seeds being planted for future growth. The movement into Australia is clever and offers a bit of diversification in terms of housing markets.

Increased staff costs that have impacted the industry as a whole, noticed a lot more slides on staff this time around. As per note 5, in the past 12 months staffing costs are up a whopping 11.6%, which to me is probably the most important stat on the expense side. On the income side, you have lower sales and delivery.

There was a JLL report released earlier last year, slating that the amount of supply is outstripping demand, and that the pipeline of all the providers have suggest that it will be a while until the demand side catches up. They also highlighted labour supply and staffing costs as big issues going forward which based on this is bang on.

Page 33 "In FY20 we do not expect underlying profit growth' is perhaps the direct answer to the recent falls. Priced for growth previously but unlikely now. It has changed my long term forecast on the stock, the wage issues are not limited to OCA as one company. Still a incredibly strong long term hold but I'm now more weary on what price I would want to enter.

Disc: Hold a decent position, not looking to accumulate unless it falls considerably

[Beagle]

Some ponderances out on my walk this morning...
Am I the only one that thinks its really strange they have forecast so early in the year there will be no underlying profit growth ?
Fact is to the best of my recollection they have never forecast the full year ahead before at the time of announcing the annual result. Why forecast a full 12 months ahead this time ?
What gives them this remarkable ability to predict the future so far ahead this time ?
Does forecasting so far ahead this time mean they have some serious confidence that no growth in underlying profit is the best case result and it could be worse ?
I guess we have to wait for their scheduled guidance update in August to find out but one cannot rule out a downgrade to an earnings decline this year, surely ?
What does this suggest they know about the difficulty in selling their steadily growing supply of unsold units ?
Why do they think the development margin is going to track so much lower when Westpac are projecting a 10% average increase in the national house price this year ?
What does their development margin compression against a very strong real estate market suggest about ongoing strong increases in the cost of construction ? or alternatively the general lack of sale-ability about what they're trying to sell ?
Are they suggesting their is effectively a major glut in market supply with their announcement and they are expecting unprecedented level's of discounting this year to try and sell it down ?
Is there something in the sales data for January and February 2020 that's not currently disclosed to the market that gives them so much confidence about 2020's weak outlook ?

I don't have any answers to the above, sorry.

[winner69]

I forecasted $118m / $120n Underlying earnings ...actual was $106m odd

Reviewing my forecast the thing I got badly wrong was the impact of construction costs on new sales margins

I reckon that costs impacted profit by about $12m (significant drop in development margin)

That’s where I went wrong ....always good to look where one went wrong ...should learn from the experience eh

Is a bit of a worry when they are saying margins are going to contract further.

[Mr Slothbear]

I forecasted $118m / $120n Underlying earnings ...actual was $106m odd

Reviewing my forecast the thing I got badly wrong was the impact of construction costs on new sales margins

I reckon that costs impacted profit by about $12m (significant drop in development margin)

That’s where I went wrong ....always good to look where one went wrong ...should learn from the experience eh

Is a bit of a worry when they are saying margins are going to contract further.

especially when their care division is a loss leader.

prior to this new units and resales been only source of profit. Not good if that gets squeezed and still have the loss making care division.

[Beagle]

I forecasted $118m / $120n Underlying earnings ...actual was $106m odd

Reviewing my forecast the thing I got badly wrong was the impact of construction costs on new sales margins

I reckon that costs impacted profit by about $12m (significant drop in development margin)

That’s where I went wrong ....always good to look where one went wrong ...should learn from the experience eh

Is a bit of a worry when they are saying margins are going to contract further.

Tells you they are really struggling to sell and don't think they can sell their units for anywhere close to their asking prices...remember they know more than shareholders...almost two more months sales evidence in January / Feb 2020 they know about but haven't disclosed to the market yet. Fixed weekly fees for life not costing you sales Julian ?...yeah right...wake up and smell the coffee for goodness sake.

Just talking to Coutts by phone and he told me Bupa have a massive unsold stock issue too. I can't help wondering how much unsold stock is out there from other non listed retirement companies ?

Bottom line is SUM differentiate themselves from almost all other retirement companies by being one of, or the only one who don't offer fixed weekly village fees for life.
Its long overdue the board ask themselves how that point of difference is working out for them ?...I've told them in no uncertain terms year, after year, after year, that they must move to the market norm of fixed fees for life but they are tone deaf. Makes you wonder, what with THL as well, whether Rob Campbell is due to retire ?

Dr Wong should be Chairman in my opinion...a very bright and highly articulate guy. https://www.summerset.co.nz/investor-centre/our-board/

Someone needs to really stir things up at the annual meeting...

[macduffy]

Someone needs to really stir things up at the annual meeting...

You'd better buy back that million shares, Beagle!

[ratkin]

Do not want to sound too macabre but has anyone looked at how deathrates effect their profitability/unprofitability. I know one of the companies made an announcement a few years ago that profits were down because not many had died over a certain timeframe.

Would say a 25% extra deathrate for a year be good or bad for the company?

[winner69]

Stats NZ data

There were 1951 consents for retirement units in 2017 and then 1829 in 2018

But in 2019 a big increase to 2381

So plenty of ‘supply’ coming on stream in next year or so.

[winner69]

Do not want to sound too macabre but has anyone looked at how deathrates effect their profitability/unprofitability. I know one of the companies made an announcement a few years ago that profits were down because not many had died over a certain timeframe.

Would say a 25% extra deathrate for a year be good or bad for the company?

If they can sign up new occupants reasonably quickly I think increased death rate is favourable

It’s all about turning over units at higher prices ....and the higher the turnover the better