SUM - Summerset Group

[Beagle]

Lets hope so mate as its been a pretty disappointing quarter with SUM down nearly 9% despite giving guidance of profit growth anticipated for FY17 at 30%, some 5% more than I was expecting.
Maybe a little bit of tax loss selling by Australian institutions at their year end 30 June ?

[Jonboyz]

Short term dips equals SUM excellent buying opportunities for long term growth.

[Joshuatree]

Peat "We worked out that 99% of last years profit was property revaluations.
Which was a shock.
However further workings indicated that about half (forgive there gross approximations) of that was realised property valuations.
Realised propery valuation gains are cash banked. The other obviously not.
So I was surprised by hardt's post that 15% came from came from care based earnings....

Disclaimer, not a holder anymore - sold out y'day. dont read anything into that"


Good post peat; i find it interesting the posts that are ignored when they have some very int but uncomfortable facts; confirmation bias? Curious why you sold . Was it due to a perception of increasing risk or you just wanted the money for something else. SUM are using the bonds to reduce their bank loans. one has to consider if the banks have had a quiet word to SUM so SUM have shifted the risk that the bank doesn't want so much anymore(due to prop valn concerns ahead etc) onto the bondholders.

[Beagle]

SUM's bankers have NOT reduced their $600m credit line as a result of the bond issue. Julian Cook has already appraised the market of the reasons for the issue....time for some homework JT ?
Peat nearly 100% of SUM's profit comes from developing new units and capital gains on the resale of the existing units. That's been the basis of their business model since they listed so why would that be a surprise to anyone now ? They make hardly anything from the operation of their villages but that might change to a degree or ten in the future...

[Joshuatree]

The bonds are to reduce bank debt no?

“The proceeds from the bond will be used to reduce existing bank debt to NZ$211 million, leaving significant headroom within the NZ$600 million facility,” said Mr Campbell.

[JeremyALD]

I'm a bit confused JT. SUM has just given guidance of 72 - 75 million underlying profit. Given their track record I'd say they have a very good chance of hitting that milestone. Their bond issue was also oversubscribed and successful. MET, SUM, RYM are all struggling to gain traction on the share markets at the moment but all are solid businesses IMO. YOY SUM is also up and it's improved from Jan 17s position. There's no reason to scare monger at the moment and we're just waiting for when retirement stocks come back in favour. There's nothing for me to think SUM is badly exposed to the property sector. Remember SUM have stated that their underlying business has improved in two property market downturns. Construction costs / delays are the bigger threat but obviously they have some confidence by issuing gudiance so early.

[Joshuatree]

Hi Jeremy Im being contrariwise for sure but not attempting to scaremonger anyone. We need balance on the threads otherwise its just full of cheerleaders ,not so good.Why do you think they are out of favour Jeremy, theres the rub!?

[BlackPeter]

The bonds are to reduce bank debt no?

“The proceeds from the bond will be used to reduce existing bank debt to NZ$211 million, leaving significant headroom within the NZ$600 million facility,” said Mr Campbell.

Read the comment about having significant headroom in the (unchanged) finance facility)? In my view the only thing SUM is doing is creating financial leverage to allow them to buy land if & when it is cheap.

The bonds have been a masterstroke to allow them to exploit any potential weakness in the property cycle to have a "re-fill" on their land bank. This might be the last opportunity for some time to buy land that cheap - and they will need lots of land to house the tsunami of old people wanting to move into good retirement care.

[JeremyALD]

Hi Jeremy Im being contrariwise for sure but not attempting to scaremonger anyone. We need balance on the threads otherwise its just full of cheerleaders ,not so good.Why do you think they are out of favour Jeremy, theres the rub!?

I think part of the reason is all three (SUM, RYM and MET) pay small dividends. A lot of the attraction to NZ at the moment is high dividend stocks, for example SPK, electricity companies and even ARV to a degree. Given the uncertainly in the property market and construction industires there's not particularly strong sentiment in retirement stocks (there's is obviously some correlation between the property market rightly or wrongly). Added to this an election is coming up soon and people are uncertain about changes in inmigration. Given the low dividend yields in SUM ect investors are being cautious. So I think it has little to do with the businesses themselves, more about the political and economic environment. Personally I think national will win the election and I can't see a property market crash. Even if there was SUM remains a good business and I can't see a huge change to their underlying fundamentals. So at this stage I'm not buying anymore but more than happy to hold. Ignoring outside factors they remain in a better position than they've ever been IMO.

[percy]

Read the comment about having significant headroom in the (unchanged) finance facility)? In my view the only thing SUM is doing is creating financial leverage to allow them to buy land if & when it is cheap.

The bonds have been a masterstroke to allow them to exploit any potential weakness in the property cycle to have a "re-fill" on their land bank. This might be the last opportunity for some time to buy land that cheap - and they will need lots of land to house the tsunami of old people wanting to move into good retirement care.

Agree.
It is also very prudent business having another secure source of funding.