SUM - Summerset Group

[BlackPeter]

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Black Peter:
The share market goes in cycles and so does the housing market I feel both cannot keep going at this rate. Retirement villages are one of the first to get hit by the down turn in both. The result out is just the start. I spent 10 years in the retirement sector and have seen times when selling houses were holding up sales with no buyers. older people don’t like dropping their price to sell their houses so there were plenty of empty villas because of it. When the sale of houses boomed, and the prices of the retirement villages shares climbed on fast growth and on new high property values. Fast growth and property values climbing are a thing of the past. They are hardly attractive for their low dividends. This will hit the shareprice because they are a stock that will get hit by a slow down in both selling houses and retirement villas etc and the company’s slowing growth.

Dear Rocket ... I notice that you are a fan of dropping markets ... maybe you should think about a more suitable pen name ; Dropping is not good for rockets ;

We absolutely agree that both stock markets as well as property markets are cyclical, however for both is the down cycle always smaller than the up cycle and - to be fair - at least in NZ was the property down cycle over the last 100 years or so typically characterised by lower or stagnating growth rates, not a sharp drop in prices.

It is easy to understand why property crashes are always softer than share market crashes. Selling a share in panic is easy. Just press a button. Haven't yet found a button to sell our house, though - and there is always the problem where my family and I would live if I panic sell the house ;p;

But back to retirement stocks. If we look at the GFC - Ryman (the only at that stage listed retirement village provider) lost during the GFC peak to bottom roughly 50% in value. This is a lot, but than - Ryman had at that stage only limited earnings - i.e. it was rated as "growth" stock.

Sum has much better earnings (and dividends) than Ryman had at that stage - it has currently already a PE which would stand up, even if there is no growth at all from here. So - even if we assume things are getting as worse as during the GFC, it would be unlikely it would drop 50% off peak - and it is anyway already 23% down, so where do you think they are going?

To top that - there are not many experts expecting a serious downturn at this stage (and certainly not another GFC). There is still a serious housing shortage in NZ and out current government would need to reign for millenia to fix that, given their prevailing build rate of some 30 houses per year. Did I forget to mention that there are still more people coming in than going out? Need more houses. Ouch.

How do I summarise that in the nicest possible terms? I think your thesis of a housing crash combined with a retirement stock crash (or vice versa) is standing on quite weak feet. But than - everybody is entitled to their opinion ... and if people would not disagree on their assessment of the market, their would not be a market.

I like it that our views disagree - let's just wait and see who is right - shall we?

Happy droppings ;

[winner69]

BlackPeter

Sum has much better earnings (and dividends) than Ryman had at that stage - it has currently already a PE which would stand up, even if there is no growth at all from here. So - even if we assume things are getting as worse as during the GFC, it would be unlikely it would drop 50% off peak - and it is anyway already 23% down, so where do you think they are going?

so where do you think they are going? .......maybe another 27% from its peak (cycle complete)

[Baa_Baa]

so where do you think they are going? .......maybe another 27% from its peak (cycle complete)

Take it day by day, first check is support at $5.94, pretty close so follow-through sentiment could threaten that, either way steel yourself for a patient observance until the opening appears. Personally I don't think the results are so bad that the $5.40-$5.50 range will breakdown, but I'll let the chart tell me. I don't see a cycle either.

My only fundamental concern is about the ongoing poor 'new sales' performance and whether that downward trend as a % of builds and total stock continues. This started well within the property boom, so maybe SUM are asking too much for their properties? Anyway, they've shown they can make nice shareholder returns even when the new stock isn't all being sold, pretty clever really (based on rising property valuations), though it doesn't look like an accounting trick so hopefully sustainable.

Some will only be concerned with the $ numbers and underlying earnings and payouts are superb for sure, it's just how sustainable that is with sustained declining new sales against a massive development pipeline. At some stage development margins and revenue must re-surface as key drivers to sustainable financial performance. Currently there's little evidence (any?) that they have a solution to the new sales weakness.

[The Rocket]

Dear Black Peter...My pen name in 2007 was The Rocket and i was just that after the big drop in world markets there were blue skies everywhere easy to make make money.

But its not that way now with lots of stocks over valued and future trading conditions are now not good for some stocks from a year ago and the way the world markets, Global house sales down and global economies slowing we will see who is right.

Will chat again with you on this site in December. Good luck with your future investments Black Peter

[Beagle]

so where do you think they are going? .......maybe another 27% from its peak (cycle complete)

I would argue that at $8 last year the shares were fulsomely priced given the modest sales performance that year so took the appropriate action at that time but with 22% earnings growth since then if the attractive PE had of stayed the same full price in the cycle, (assuming we are actually at the end of a cycle), on a theoretical basis would be $8 + 22% = $9.76.
We are already a very long way south of there and we're not in GFC MK2 last time I checked. The current forward PE is the cheapest its ever been since the company listed so a very negative view of future real estate prices is already priced in but as we know market sentiment and momentum is a powerful force. Greed and fear...always been the two most powerful motivational forces in the market and always will be.

"Be greedy when others are fearful" Warren Buffett

[oldtech]

"Craigs Investment Partners is recommending investors sell shares in retirement village operator Summerset Group and to buy shares in utilities software provider Gentrack."

http://www.sharechat.co.nz/article/d...and-scaleshtml

[bull....]

Black Peter:
The share market goes in cycles and so does the housing market I feel both cannot keep going at this rate. Retirement villages are one of the first to get hit by the down turn in both. The result out is just the start. I spent 10 years in the retirement sector and have seen times when selling houses were holding up sales with no buyers. older people don’t like dropping their price to sell their houses so there were plenty of empty villas because of it. When the sale of houses boomed, and the prices of the retirement villages shares climbed on fast growth and on new high property values. Fast growth and property values climbing are a thing of the past. They are hardly attractive for their low dividends. This will hit the shareprice because they are a stock that will get hit by a slow down in both selling houses and retirement villas etc and the company’s slowing growth.

another person who sees logic , wonder how many remember 1987 all those property developers were the hardest hit. obviously retirement stocks are not pure play property developers but they make a large proportion of profits from building and selling property.

[Beagle]

"Craigs Investment Partners is recommending investors sell shares in retirement village operator Summerset Group and to buy shares in utilities software provider Gentrack."

http://www.sharechat.co.nz/article/d...and-scaleshtml

Craigs make no mention of the relative valuation of RYM v SUM and I note they both ostensibly operate very similar business models yet RYM trades at twice the forward PE but has been growing at well under half the rate since SUM listed more than 7 years ago. I also note RYM have significant exposure to the fast declining Melbourne market.
I think Craigs have this very wrong.

Once the sheep who can't think for themselves have finished selling I will buy more. I have backed myself many times before against bad TA and bad analyst calls and far more often than not I do handsomely well.

[bull....]

key points i agree with

For us, structural drivers including an aging population, are overridden by our cautious view of the housing market,”

Craigs says says that although margins in the retirement sector are likely to contract on the resale of units




as i said about all these stocks - totally its all about property which drives these stocks not anything else, if margins keep falling divs will decline anyway watching fast approaching big support if it fails look out.

[Beagle]

National average property price goes up 2.5% and some people think the world is ending, its becoming quite comical lol