SUM - Summerset Group

[Beagle]

Now, now, Roger!

Remember, you promised to stop scratching that particular itch!

Pretty sure part of my DNA is being a naughty dog...must stop chewing on old buried bones

[winner69]

Anyone want to make a guess to where the S.P will be in 5 weeks? This isn't a result of Mrs Barlow resigning. That clouded peoples vision and feelings for this company. Don't get so emotional guys. Especially Couta1

Guru Ben Graham said 'Buy not on optimism, but on arithmetic.'

The arithmetic is -

Share price end of year $6 - 40 weeks to go - so 4 cents a week - so in 5 weeks sUM about $4.65

The optimism is -

Over $5.00 as the market realises this years earnings will be in excess of $120m

[Beagle]

I reckon the retirement sector is one of the VERY few where you can reliably predict long term earnings growth. Must apply Ben Graham's formula to SUM and see what valuation that gives us.

What long term 7-10 year average growth rate you guys reckon I should use. Same as RYM 15%, a little more or less ?

Here's how it looks with 15%

v = previous years EPS..he didn't have fancy terms like revaluations so we'll be nice and conservative and stick with underlying EPS which was 37.8m / 220.26m shares = 17.16 cps x (8.5 + 2G) where g = 15% per annum long term average growth, we get $6.61

Here's how it looks at 17%
If it can grow a little faster than RYM because its relatively small and nimble and we assume 17% average underlying profit growth we get $7.29

Here's how it looks at 13%
If average growth not quite as good as Ryman then we get $5.92.

I reckon that Ben Graham knew a thing or two.

Of course if earnings growth is something like 40 - 50% this year because of the big jump in build rate and further efficiencies and economies of scale we might have to revisit these numbers next year.

[Gunny]

I know where Mum and Dad are (Summerset) the minimum age for entry is now 70 and the price for a 3 bedroom in the complex is now over 500K. So turn rates may increase over time with older age entry point. Although Dad did say money talks as well to getting in.

Gunny

[winner69]

I reckon the retirement sector is one of the VERY few where you can reliably predict long term earnings growth. Must apply Ben Graham's formula to SUM and see what valuation that gives us.

What long term 7-10 year average growth rate you guys reckon I should use. Same as RYM 15%, a little more or less ?

Here's how it looks with 15%

v = previous years EPS..he didn't have fancy terms like revaluations so we'll be nice and conservative and stick with underlying EPS which was 37.8m / 220.26m shares = 17.16 cps x (8.5 + 2G) where g = 15% per annum long term average growth, we get $6.61

Here's how it looks at 17%
If it can grow a little faster than RYM because its relatively small and nimble and we assume 17% average underlying profit growth we get $7.29

Here's how it looks at 13%
If average growth not quite as good as Ryman then we get $5.92.

I reckon that Ben Graham knew a thing or two.

Of course if earnings growth is something like 40 - 50% this year because of the big jump in build rate and further efficiencies and economies of scale we might have to revisit these numbers next year.

Scary stuff - whichever you look at Summerset you get a valuation in excess of $6

My simple arithmetic is f16 earnings of 55 cents a share ($120m) and a conservative PE of 11 gives value of $6.06 as a bare minimim. Thats not a target price - thats what it should be now.

[winner69]

Hey Roger - do that sum this time next year with 30 c/s earnings and 15% growth you will get $11.50

Even if that seems outrageous it does highlight how cheapSUM is at the moment.

[Beagle]

Hey Roger - do that sum this time next year with 30 c/s earnings and 15% growth you will get $11.50

Even if that seems outrageous it does highlight how cheapSUM is at the moment.

Yeap, all the risk is to the upside when its clear the current year increase in build rate is growing from 300 units per annum to 400. Looks cheap to me, might have to get some more...reckon it'll be the Easter bunny that keeps on bringing joy. At some stage soon once the word is properly out we might even see it do a RYM where its gaps up more than 100% over a 18-24 month period.

[winner69]

Yeap, all the risk is to the upside when its clear the current year increase in build rate is growing from 300 units per annum to 400. Looks cheap to me, might have to get some more...reckon it'll be the Easter bunny that keeps on bringing joy. At some stage soon once the word is properly out we might even see it do a RYM where its gaps up more than 100% over a 18-24 month period.

Punters should do their own arithmetic (Ben's word) to see what Summerset might make next year. Better than these rule of thumb formulae.

Estimate how many sales of new units and resales of existing units and multiply it by how much you reckon they make (essentially the realised fair value adjustment figure) on average from each sale.

Thats the underlying profit and don't forget that all the other properties will be revalued up as well. There is nothing on the horizon to suggest that revaluations over the next few years wont be pretty healthy

Then what's Summerset worth?
.

Easter homework - its meant to rain a couple of days..

[winner69]

Couldn't but help notice on NZX website SUM up 39% ver last 52 weeks while RYM is still the same price.

SUM the preferred stock in retirement sector and seen to have greater medium term potential?

...or just the Norah effect

[Beagle]

Uncle Percy reckons SP follows earnings so underlying EPS up 55% last year and looking at 40-50% this year and only a 39% increase in SP means heaps of room for this puppy to run....but wait there's more...look at it since I sold 2 years ago at $3.60. Combined FY14 and Fy15 EPS growth since then has been 70% so 3.60 x 1.7 = $6.12 now (not a price target in 12 months time with another 40-50 growth). Freaky how that $6 figure keeps cropping up isn't it !!