SUM Summerset Group

[Buzz]

Very good slide SUM included in their results. Steady state free cash flow of $236m (positive) should help allay punters (including Craigs guru analyst) fears of perceived high debt

How does this affect their debt, or is the perceived high debt only bank debt?
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[winner (n)]

How does this affect their debt, or is the perceived high debt only bank debt?
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Some going to repay existing bonds in July ($100m) so no real impact on leverage

[lorraina]

Well it does not look as though they are going to stop "Going for it",with expanding sites and building program.
Perhaps they do not read the doom and gloom on social and other media.
Wonder why?.
Could be they know their business better than any one else.

[kiwi2007]

Ociania (OCA020) and Arvida (ARV010) bonds maturing in 2028 both trading over 7%

[kiwi2007]

Johnny Lee:
Summerset's result was met with cheer, as the company reported a record underlying profit, although net profit after tax fell – although still a healthy profit - from last year's 136% net profit growth.

While competitor Ryman Healthcare remains in the news for far more negative reasons, Summerset has moved from strength to strength, having avoided the debt pitfalls Ryman stumbled into over the last few years.

The development pipeline remains strong for Summerset, while the resale portfolio reaches new heights and introduces a steady flow of recurring revenue. The landbank is substantial and will be the source of much of its revenue growth going forward.

Although the dividend yield remains relatively insignificant, it is moving in the right direction and rewarding long-term shareholders. In 2015, the dividend was 5.3 cents. This year, it is 22.3 cents.

While Ryman has its hat out for shareholder funds, Summerset is filling its investors pockets with growing dividends. The share price moves have reflected this difference, with Summerset's share price rising and Ryman's diving following the respective announcements.

[winner (n)]

And Johnny was probably the cause of the share price collapse yesterday?

[Basil]

Final terms are 6.59% and they took all the oversubscriptions for a total issue size of $175m.
Interesting...It's got me thinking that we live in quite interesting times when one of our blue-chip companies have to pay that interest rate for corporate debt when just a couple of years ago you could raise 5–6-year corporate bonds at 2.0-2.5%.

An interesting exercise might be to have a look at which companies are enjoying tailwinds from the once in a lifetime opportunity they took advantage of, borrowing recently at ultra-low rates, and then consider what impact on their earnings if they had to replace those borrowings with funding at say 7% now.  That might give a useful heads up on the scope of the impact on earnings once funding tailwinds disappear.

Here's a worked example of what I am referring too.
With OCA 010 they have $125m at 2.3% maturing in late 2027.  These bonds trade at 7.2% currently.
If they replaced that debt at 7.2% they will face a 4.9% increase in rate on $125m = $6.125m per annum in additional funding costs.
With OCA 020 they have $100m at 3.3% currently trading at 7.6% = extra 4.3% = extra costs of $4.3m per year. 
In total marking their corporate bond funding on a mark to market basis if they were to fund that today they'd face circa $10.4m extra per annum in interest costs.  Then there's the substantial extra costs on their $500m bank funding to consider as well.
Something else to consider when they report in May is they are also enjoying tailwinds from previous fixed price construction contracts that are expected to end in 2024.  With some of their bonds trading in the late 7% range, I wonder is the market starting to get concerned about OCA's, highest of sector debt?

This SUM corporate bond has shone the spotlight on the need to be ever mindful that tailwinds from ultra cheap debt funding only last for a modest period of time and then they're gone and in my opinion there's a good chance we'll never see rates for funding in the low 2% range again in our lifetime.

If some companies, (not referring to SUM here), can't grow earnings when they're enjoying massive tailwinds from funding, what hope is there for earnings growth when debt is FAR more expensive?
 

[mcdongle]

I was thinking the same thing as SUM 030 PAYS 2.3%

[Breezy]

Not just OCA heading for a 52 wk low, SUM not doing any better. Well there you go its just gone $8.66.

[winner (n)]

Slow start to 2023

Q1 sales down quite a lot v last year

Just as well they don't use percentages ....would have had to say 25% less



http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SUM/409655/392297.pdf

[Teitei]

Slow start to 2023

Q1 sales down quite a lot v last year

Just as well they don't use percentages ....would have had to say 25% less



http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/SUM/409655/392297.pdf

115 new sales and 95 resales in Q1 2023 vs 167 & 112 in Q1 2022.

So 31% less new sales but only 15% less resales.

No mention of how stock levels are building up?

[winner (n)]

Hope SUM getting good prices and margins for the sales they are making

[Basil]

Very useful lead indicator for what its going to be like for the other companies in this sector now we're into FY24. 

[winner (n)]

SUM sales numbers (esp new sales) started declining when peak of property market was reached

Spooky eh ... as some say they not related



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[winner (n)]

Very useful lead indicator for what its going to be like for the other companies in this sector now we're into FY24. 

Obviously not just a SUM problem this decline in sales

ARV H1 new sales down 25% on pcp and their resales were flat even with Arena numbers thrown in