SUM - Summerset Group

[peat]

how many did you buy today Hoop ?

[Hoop]

how many did you buy today Hoop ?

None!!!....I've spent all my money frying better fish (with a bit of A2 milk added to the mixture)...Peat

[Beagle]

Absolute cracker.
That development margin is a pleasant big surprise.

Huge surprise really and reading through the presentation its clear that the construction cost issue is an Auckland specific problem.
Behind the paywall article and linked radio interview with Julian Cook on NBR yesterday afternoon reports that he is very confident of achieving 450 new units this year.
171 in the first half generated ~ $21m development margin so simple extrapolation suggests 279 in the second half would result in 63% more development profit ~ $34m. Add in resales with significantly higher embedded value and I think its crystal clear their full year forecast of $72m - $75m is extremely conservative.

I am looking forward to upgraded guidance in due course which I expect will come out shortly after Q3 sales data release sometime in October.
My modelling originally had SUM at $70m underlying for the year as at late April after the AGM which proved a bit conservative.
My revised modelling shows $85 - $90m underlying for the full year with a bias towards the upside. I see approx. 40.5 cps underlying profit for the year putting SUM on 2017 PE of just 12.5 and this from a company with a long proven track record of growing earnings at a CAGR of 48% !

Further, if they hit the top end of my forecasted underlying profit they would have grown underlying earnings at 59% this year ! The stock is trading on a PEG ratio of just 0.25 ! In addition I note our resident TA expert Hoop gives it the TA tick and I also note a clear break up through the 100 day MA at $4.97.
The management team and board have my full confidence. I am expecting quite significant analyst upgrades after yesterday's stunning result.

I have conducted my own analysis looking forward to determine how the increased Auckland construction cost pressure might affect development margins in Auckland on new projects in Parnell and St John's. Julian Cook yesterday in an interview with an NBR journalist talked about Auckland construction cost pressure of ~ 10%.
Its a relief he's finally put a figure on it but cautions that its quite likely this problem remains.
Against that my analysis which is based on suburban sales data from Barfoot and Thompson shows average sales values in Parnell in the six months to May 2017 of $1.76m up from $1.13m in the same comparable period two years ago an increase of 55.8%.
St Johns average was $1.20m as compared to $729K two years ago, an increase of 64.6%.
We know that retirement units in any given suburb are a function of, and inextricably linked to prevailing suburban prices so I have every confidence regarding their ability to develop these forthcoming Auckland villages at very attractive development margins based on the companies track record of taking development in house and growing development margins strongly over several years and also based on the significant increase in those suburbs house prices which is well ahead of the Auckland average over that timeframe.

Shareholders appear to be very well positioned. Disc: Holding and have been busy topping up yesterday and this morning for long term capital growth.

[winner69]

Presentations and interviews the phrase 'we set the prices' (of units) gets used a lot

Really working this in light of their high margins in the face of increasing building costs (and perceived collapse in property prices)

[bull....]

property developers always did well leading up to 1987

[Zaphod]

property developers always did well leading up to 1987

There were certainly some bargains to be had immediately after 1987, for those who had any cash left of course.

[percy]

You can not stop the aging process,as the great tsunami of retirees over the next 20 years will prove.
Always being in the right sector at the right time, offering a product the customer wants proves very profitable.
Shareholders remain "well positioned."

[Antipodean]

Did I miss something? NZX and ASB showing NTA of $158.811 for this stock....

[Beagle]

Did I miss something? NZX and ASB showing NTA of $158.811 for this stock....

Have a look at yesterday's presentation on the NZX, completely different number, its $2.86
https://www.nzx.com/files/attachments/263382.pdf

Interestingly embedded value is now up to $140K per unit as at 30 June 2017 up from $114K on 31/12/16 and $95K as at 31/12/15 which will have a huge positive impact going forward in terms of profit on resale's.

[Antipodean]

Fundamentally SUM is ticking a great many of my boxes so I have taken a sizable position today. Could have got in a few pips lower but I think over time this will be of relatively little effect.

Re: NTA - What I was saying was that I think someone entered the numbers wrong - hopefully corrected shortly.

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