SUM Summerset Group

[winner (n)]

Well done Summerset ... a ripper of an update. Market close report -

"The day's big story was Summerset's absolute ripper of a quarterly update," Shane Solly, a portfolio manager at Harbour Asset Management, said. "That dragged up other parts of the market in quite a broad rally."

[Greekwatchdog]

For Bars review...

Summerset (SUM) reported record new sales and resales in 4Q23, with resales in particular ahead of our expectations. The strong Q4 resales numbers resulted in FY23 resales up +16% from its weak FY22. More importantly, resales as a proportion of overall stock for SUM is now back at its long-run average, indicating a normalised, or close to fully normalised, market. The aged care stocks have had a good holiday season, up ~+10% on average over the last month. We see SUM's update as supportive of further gains for the sector. SUM trades at ~1.1x P/B value and a ~+45% premium to Ryman Healthcare (RYM) on an EV/Annuity EBITDA basis. Retain NEUTRAL.

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NZX Code   SUM
Share price   NZ$10.86
Target price   NZ$10.50 (from 10.15)
Risk rating   Medium
C&ESG rating   A-
Market cap   NZ$2,511m
Avg daily turnover   226.8k (NZ$2,131k)




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Financials: Dec/   22A   23E   24E   25E
Rev (NZ$m)   413.8   464.3   499.9   539.7
NPAT* (NZ$m)   171.5   181.6   182.8   184.4
EPS* (NZc)   74.4   78.2   78.4   79.1
DPS (NZc)   22.3   24.0   25.0   26.0
Imputation (%)   0   0   0   0
*Based on normalised profits





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Valuation (x)   22A   23E   24E   25E
PE   14.6   13.9   13.9   13.7
EV/EBIT   18.1   17.6   17.7   16.9
EV/EBITDA   16.9   16.4   16.3   15.5
Price / NTA   1.1   1.1   1.0   1.0
Cash div yld (%)   2.1   2.2   2.3   2.4
Gross div yld (%)   2.1   2.2   2.3   2.4




What's changed?



Earnings: Underlying earnings +2%/+1%/+1% driven by increased new sales and resale gains.
Target price: Increased to NZ$10.50 (from NZ$10.15) on increased annuity EBITDA from higher resale gains.


Strong resales point to an improving housing market backdrop — commentary suggests forward indicators remain positive


New sales were expected to be solid given deliveries skewed to 2H23, but the strong resales result, +16% YoY for FY23 and 4Q23 sales comfortably above trend, indicate a genuine pick-up in demand, supported by an improving NZ housing market as shown in REINZ data. SUM's 4Q23 resales of 174 were comfortably a record for the company and +16% ahead of our expectations. Resales were up +26% YoY for the quarter. We view this as another sign that the housing market has begun to improve. SUM stated it, 'was optimistic for the year ahead, seeing positive signs that the residential property market is improving, and with strong levels of demand and pre-sales already'. Additionally, the most recent REINZ data points to an improving housing market with sales up +36% on a three month rolling basis since its trough (seasonally adjusted), with days to sell down -37% from their peak.

Solid new sales given 2H delivery skew


SUM had previously flagged its FY23 deliveries would be 2H skewed and thus stronger new sales towards the year end. Pleasingly, SUM has delivered this, with new sales of 186 for 4Q23 marginally ahead of our expectations, and growth of +34% YoY for the quarter or +4% for FY23. SUM does not disclose prices or margins achieved in its quarterly updates, but our Montgomerie-Ibbotson pricing index indicates SUM has continued to hold its unit prices broadly flat for the last 18 months.

SUM has (finally) delivered its first units in Australia


In 4Q23 SUM delivered its first 10 units at its first Australian village (Cranbourne North�������) with residents to move in in 1Q24. This timing is in line with its expectations over the past 18 months but nearly two years later than originally planned. At its FY19 result it indicated its first village would open in late 2021/early 2022, this was pushed to early 2023 at FY21, then delayed to 4Q23 in 2022.

[Basil]

Thanks for sharing and interesting that they're not projecting any meaningful eps growth in the next 2 years.  If its that way for SUM that's going to be the very "best case" scenario for the others, in my opinion.

[Dolcile]

Can someone please help me understand why the ratio of PPE to Investment Property is so different amoung the RV operators.  Ryman and OCA seem to be real outliers. Thanks

PPE/Investment property:

SUM at June 2023: 348m / 5,795m = 6%        [HY uNPAT $87m, MC $2.5m]
RYM at Sept 2023: 2,238m / 9,833m = 22.7%   [HY uNPAT $139m, MC $4B
OCA at Sept 2023: 753m / 1,728m = 43%       [HY uNPAT $37.6m, MC $500m]
ARV at Sept 2023: 205m / 3,689m = 5.5%       [HY uNPAT $33.6m, MC $877m]

[Minimoke]

Nice to see it break through $11.00 today. Onwards and upwards!

[BlackPeter]

Can someone please help me understand why the ratio of PPE to Investment Property is so different amoung the RV operators.  Ryman and OCA seem to be real outliers. Thanks

PPE/Investment property:

SUM at June 2023: 348m / 5,795m = 6%        [HY uNPAT $87m, MC $2.5m]
RYM at Sept 2023: 2,238m / 9,833m = 22.7%   [HY uNPAT $139m, MC $4B
OCA at Sept 2023: 753m / 1,728m = 43%       [HY uNPAT $37.6m, MC $500m]
ARV at Sept 2023: 205m / 3,689m = 5.5%       [HY uNPAT $33.6m, MC $877m]

It might help if you - as a first step - check your numbers and as second step explain what you mean with PPE (personal protective equipment?) , uNPAT (unaudited NPAT?) and MC. I suppose MC is not Marketcap, is it?, otherwise I would based on your numbers happily buy out SUM.

[Dolcile]

It might help if you - as a first step - check your numbers and as second step explain what you mean with PPE (personal protective equipment?) , uNPAT (unaudited NPAT?) and MC. I suppose MC is not Marketcap, is it?, otherwise I would based on your numbers happily buy out SUM.

Good spot.. I mistakenly typed $2.5m instead of $2.5 BILLION for Summerset.

PPE....property, plant and equipment . I.e. the care assets, on the balance sheet

uNPAT....underlying NPAT, standard RV measure of performance

Yes, MC = Market capitalisation 

[winner (n)]

Good spot.. I mistakenly typed $2.5m instead of $2.5 BILLION for Summerset.

PPE....property, plant and equipment . I.e. the care assets, on the balance sheet

uNPAT....underlying NPAT, standard RV measure of performance

Yes, MC = Market capitalisation 

I think you have answered your own question ..at least in OCA case they have a greater %ge of care units relative to others

[Mos]

SUM $11.00, RYM $5.76 - a long way from a few years ago when RYM price was twice SUM. Hats off to SUM management and Board for industry leading strategy and execution.

[Basil]

I was a lone voice, the only one on the other channel who called out the 1 RYM = 2 SUM as being a load of crap and predicted one day SUM would exceed RYM. I also called RYM a SELL 10 years ago @ $8.50.

What matters now though is where to from here?  Need to take my dog for a long walk in the park, when my injured knee comes right and see what new insights come to mind.

[Basil]

Summerset Blenheim opens.  https://www.stuff.co.nz/business/350158329/first-residents-move-new-blenheim-retirement-village
I think a weekly fee of $167 is very reasonable for what it covers and what will be on offer as the village is completed.

[Minimoke]

Summerset Blenheim opens.  https://www.stuff.co.nz/business/350158329/first-residents-move-new-blenheim-retirement-village
I think a weekly fee of $167 is very reasonable for what it covers and what will be on offer as the village is completed.

72m unit has a sale price price of $8,540 a SQM. And $669 for 112sqm. Far from cheap buying. Got to be a hefty margin in there.

[winner (n)]

72m unit has a sale price price of $8,540 a SQM. And $669 for 112sqm. Far from cheap buying. Got to be a hefty margin in there.

Hefty margins ....great stuff

Like keeping an eye on Heartlands NIM

[KW]

Stats NZ says number of retirement village units consented last year was down 23.3%

[Basil]

Stats NZ says number of retirement village units consented last year was down 23.3%

RYM, ARV and OCA are slowing their build rate, all have problems to varying degrees. ARV arguably a heck of a lot less than the other two.
Best of breed SUM never seem to put a foot wrong and are the only one in this sector performing like a well-oiled Swiss watch.
Noticed SUM getting a fair bit of support with brokers picks for 2024.