SUM - Summerset Group

[trader_jackson]

Hey Roger, still plenty of cheap shares on offer. Disc-Still accumulating.

Sounds like everyone is buying, look forward to seeing a few SSH notices

Share price the same as what it was 15th August last year, give or take a cent... I guess you've been busy buying these past 9 months couta1?

It has only gotten 'cheaper' over that period (PE wise)... surely its all about to take off?

[Beagle]

As previously posted, SUM's forward PE for YE 31/12/2017 based on my forecasted underlying profit of $70m is 16.2.

Ryman made $158m underlying profit in the year ended 31 March 2016. If they can achieve 15% underlying earnings growth to be announced later this month they will make $181.7m underlying earnings in the year to 31 March 2017 and if they can generate another year of 15% underlying earnings growth for the subsequent year they will make $209m in the year ended 31 March 2018 which on 500m shares on issue = Underlying earnings of 41.8 cps.
At $8.69 a couple of minutes ago this puts RYM on a 31 March 2018 forward PE of 20.8 which is the cheapest they have been for several years.

Given their respective growth rates over the last 5 years a fair question to ask is does RYM's track record warrant a PE premium to SUM ?

[silu]

I am OK with RYM having a higher PE because of its exposure in OZ.

discl. hold SUM, RYM & MET

[couta1]

I am OK with RYM having a higher PE because of its exposure in OZ.

discl. hold SUM, RYM & MET

Yes, you have to allow a higher PE due to the compounding effect of the Aussie expansion, once it starts kicking into play. More growth potential commands a higher PE

[Beagle]

SUM 48% growth average over 5 years v RYM 15-16% growth average is a pretty compelling divergence in historical growth.

I respectfully disagree on RYM's Australian expansion giving them potential for more growth. SUM have stated they'll look at Australian expansion themselves in due course and have more years land bank supply currently on hand, (suitable development sites are shaping up as one of the key constraints for the industry in my opinion).

I think where RYM do have an advantage is utilizing their own building company to control the development cost, this could be advantageous in the Auckland market in particular where SUM might be more exposed to higher external contractor costs. That said I'd imagine RYM will need to be paying top dollar to hang on to their best building staff for the foreseeable future.

I do expect their respective growth rates to converge somewhat in the near future but still that leaves the question of whether a PE premium is warranted for RYM given their systems are already pretty much perfected whereas there's still some potential for enhanced procurement and construction efficiency for SUM to come in my view and Julian Cook alluded to that point during the meeting in response to my question.

I also feel there's potential for more premium pricing to be obtained by SUM if they can unlock the pricing power of fixed weekly fees for life. This is something I discussed with Julian after the meeting and something I intend to follow him up on by e.mail in due course.

[stoploss]

SUM 48% growth average over 5 years v RYM 15-16% growth average is a pretty compelling divergence in historical growth.

I respectfully disagree on RYM's Australian expansion giving them potential for more growth. SUM have stated they'll look at Australian expansion themselves in due course and have more years land bank supply currently on hand, (suitable development sites are shaping up as one of the key constraints for the industry in my opinion).

I think where RYM do have an advantage is utilizing their own building company to control the development cost, this could be advantageous in the Auckland market in particular where SUM might be more exposed to higher external contractor costs. That said I'd imagine RYM will need to be paying top dollar to hang on to their best building staff for the foreseeable future.

I do expect their respective growth rates to converge somewhat in the near future but still that leaves the question of whether a PE premium is warranted for RYM given their systems are already pretty much perfected whereas there's still some potential for enhanced procurement and construction efficiency for SUM to come in my view and Julian Cook alluded to that point during the meeting in response to my question.

I also feel there's potential for more premium pricing to be obtained by SUM if they can unlock the pricing power of fixed weekly fees for life. This is something I discussed with Julian after the meeting and something I intend to follow him up on by e.mail in due course.

Roger to look at the other side of the coin if there is room for "enhanced procurement efficiency " from SUM .If they are not doing the building themselves there is the possibility of a blowout in costs on a build , a la FBU dropping cash on projects , so at some stage they maybe able to do this better .However in the meantime they could be open to a blowout or two ....

[Beagle]

Roger to look at the other side of the coin if there is room for "enhanced procurement efficiency " from SUM .If they are not doing the building themselves there is the possibility of a blowout in costs on a build , a la FBU dropping cash on projects , so at some stage they maybe able to do this better .However in the meantime they could be open to a blowout or two ....

FBU's issue is that their contracts are generally fixed price. As Julian said at the annual meeting SUM set their own retail price.
Those moving into a nice brand new Auckland SUM unit in future might have to accept the reality that building costs in Auckland right now are very high and that as to be reflected in the price.
Price resistance could be an issue in the future which is why I'll be talking again to Julian about the pricing power of fixed weekly fees for life.

[couta1]

I keep chasing this mother down but it doesn't want to find it's bottom, Ryman doing good Roger, get that cider ready mate, still a few weeks to go until it's result so it should hit my target price. PS-Might have to sell some Sum if I accumulate too many (Probably not possible) Sum must be one of the only true value stocks left in this current bubbly NZX. PPS-Not at all worried if I end up XXXOS in Sum.

[Beagle]

$9.20 before report day for RYM, (Roger short / Couta1 long)...looking forward to my free cider after next years SUM annual meeting or maybe earlier if we catch up and go skiing at Queenstown this winter . The SP action on SUM is at odds with my assessment of fair value but I'm not worried about it mate and am more than happy to hold for long term growth. SUM now have a good track record of doing what they say they're going to do in terms of forecast build rate and margins are on track as confirmed by Julian. Oceania list on Friday ? Might give the whole sector a lift, hopefully not over $9.20 for RYM

[trader_jackson]

FBU's issue is that their contracts are generally fixed price. As Julian said at the annual meeting SUM set their own retail price.
Those moving into a nice brand new Auckland SUM unit in future might have to accept the reality that building costs in Auckland right now are very high and that as to be reflected in the price.
Price resistance could be an issue in the future which is why I'll be talking again to Julian about the pricing power of fixed weekly fees for life.

In my view, I am not sure how successful one would be rising prices in a flat or declining market... SUM can set their prices of course, just like anyone, whether they achieve that sale price, given market dynamics, is a very different question

OCA's listing clearly seems to be helping 1 of the operators at least... good to see ARV climbing again on higher than usual volumes... not long till they'll be at all time high's I'm sure You'd think, given OCA is soo undervalued to ARV we'll see a nice pop on the first day(s)?