MET - Metlifecare - one for the fundies?

[Beagle]

14% underlying EPS growth. Check the PE guys....far more realistic than some other inflated retirement companies. PE is less than 10 if you include revaluations, (I don't). DYOR...I'm too busy.

[BlackPeter]

Underwhelming growth of only 7% in sales/resales volume = the turn around is not working.

Glad I sold this and bought extra SUM....

How do they say ... the share market is a device to transfer money from the inpatient to the patient ...

If you look at the growth of their development pipeline - 100% (give or take a bit) is in my view nothing to spit at ...

METGrowth.JPG

[Bjauck]

Development margin down 4%. With a surging real estate market especially in Auckland, that surprises me. I would have expected the margin to have increased.

[limmy]

Good result. Increased final dividend too.

[Beagle]

BP - I have studied MET at length, and had $500,000 invested in them at one point. They simply are not in the same league as SUM and RYM, as this relatively mediocre result confirms.

That build rate is very low for such a large organisation. It amounts to about only 5% increase in units p.a., while SUM is closer to 15% - 20%. And, it is this growth in volume which paves the way for financial growth over the long run.

Yep, I am very comfortable with ditching this stock.

They have a good development pipeline coming in FY17 but are definitely the most established player so most of their profits come from resale's. If you can't understand a PE of well under 10 including revaluations then you don't understand the Auckland property market.

[Bjauck]

Wow, upon closer inspection, it looks like nearly all the growth in underlying earnings was simply due to changes in house/unit prices. Clearly, that is not a sustainable avenue for "growth"

I do not have any experience in the business and I am not a accountant, but the underlying profit was up by about 14%. The underlying profit removes non-cash items (including movements in property valuations). In general I thought the MET result was a steady-as-she-goes result, perhaps with the IFT investment and involvement yet to yield its best fruit.

I would be interested in what you and the other gurus think about the falling development margin.

[Beagle]

Met lifts annual profit 78%. Underlying profit up 14%. Embedded value per unit up 19.3% to $155K
289 Units and beds currently under construction.
Net cash flow up from $59.5m to $83.3m up 40% (we all know these companies are all really about cash flow)
Underlying EPS was 24.7 cps so MET on a historic PE of 18 for a company that grew underlying earnings 14% last year and 37% the year before.
Development pipeline expands considerably to over 2000 units and beds.
New appointments to development team including 8 new staff.

What you are buying here is a developing development team story...if that makes sense. Good growth in development coming but it looks like development margins will be challenging for FY16 for reasons stated in the results presentation.
My feel is the stock is a good long term hold and the clear value story in its field, a field we all know has considerable demographic tailwinds.
Interestingly their major site acquisitions are conditional (Red Beach and Manukau)..i.e. they're not so gung-ho when purchasing sites as to assume they can get the required consents.

I think the influence of Infratil will make itself felt in the years to come and some of the current small developments and lower development margins are the result of legacy decisions.

Happy holder for long term growth.

[Beagle]

NG I am a long term value investor. I use traditional valuation methodologies like Ben Graham's valuation formula. No reason why MET can't grow earnings in the low - mid teens percent per annum for the foreseeable future.
They have a large existing land / unit bank which in my view gives more sustainability to that earnings growth rather than the lumpy earnings growth you'll get with newer players.
The stock grew underlying earnings by 37% in FY14 and 14% in FY15. Its on a historic PE of 18 based on underlying earnings. Its up to people to make their own value assessment but for mine this is the best value equation in a sector with exceptionally strong demographic tailwinds.

According to Ben Graham's formula where V = last year EPS x (8.5 + 2g)
If we assume long term earnings growth is 14% this gives us 24.7 x 36.5 = $9.02

But because I'm a ham fisted old bugger I like to buy earnings growth on the cheap and as posted before substitute my own 1G for Ben Graham's 2G...that way I know I'm buying growth at a dirt cheap price.

Using my own formula I get 24.7 x 22.5 = $5.56 which coincidentally is about the fair value consensus price target of the brokers.
Use of this formula is ALL ABOUT conservatively estimating long term sustainable earnings growth for the next 7 to 10 years. With RYM you can probably use a 15% growth rate as a long term estimate...with SUM...who knows ?, you decide for yourself. Each to their own...if you like Julian Cook and Norah's way of doing business fill your boots mate.

[BlackPeter]

NBR article looking at both sides of the equation:
http://www.nbr.co.nz/article/metlife...ps-cs-p-177787

[BlackPeter]

Paywall in effect

sorry - thought they allow forwarding without paywall.

OK - in summary (after repeating the numbers we already know) they highlight

slipped development margins ... but explain that with (at current) small developments and challenging topographie (whatever this means)

strong demand and sales growth and high occupancy rate (98%)

prospects - a number of new green field sites

"due diligence completed at its Red Beach site and a resource consent application about to be filed for a $250 million, 492 unit development. It has a conditional agreement on a site at Manukau Golf Course."

Ah yes - and comparing Sum with MET, they indicate SUM's profit doubling and higher build rates and conclude:

“But you’re paying for that as well, as Summerset is trading well above its asset level. To push MetLife on, people would be looking for more certainty around build rate and development margins,” Mr Sherrock says.

Personally - I do think that both companies will grow. Sometimes one of them will lead and sometimes the other. A comparison between them does in my view not justify a "religious war" (based on different believes) ... but than in my view nothing does - and there are still lots of people out there even killing each other for not sharing the same believes - i.e. throwing pen-strikes at each other is probably still quite civilised.

Discl: Used to hold SUM (and sold out on recent peak, because I don't think that the recent (great) results will be sustainable) and accumulated some more MET.