SUM Summerset Group

[Basil]

Excellent result in a tough market. SUM make all other listed company management in this sector look like absolute idiots.

I remember the days that many on the other channel swore black and blue RYM would always be twice the price of SUM and my position back then many years ago was that someday SUM would eclipse RYM's share price and go on to be twice the price of RYM.  I was ridiculed by many for that apparently preposterous long-term prognosis.  I can't help myself wryly observing that today, SUM's closing share price is now more than four times the share price of RYM !  That's the difference between management who know what they're doing over time and the gross incompetence shown by RYM management in the years since Simon Challis left.  I don;t think things are really any better over at OCA but at least there, the heavy discount to NTA fairly reflects the full extent of the headwinds faced.  That's right, I'd rather buy OCA at 67 cents than RYM at $3.08 but it's definitely a case of picking the least really ugly sister lol.  Thankfully there's plenty of other choice on the NZX and I remain of the view in this sector the best choice is SUM or have none.  KFL have some SUM and their portfolio allocation is all I feel I want or need.  Hope KFL not tipping more money down the RYM black hole.

[winner (n)]

More than solid sales update from Summerset


June Qtr sales up 20% on last year

Cite 'strong demand' ...that's good

https://announcements.nzx.com/attachment/447070.pdf

 You cannot view this attachment.

[Basil]

Very impressive and not surprising considering they're selling what customers really want.  Inferring from SUM's great result that others in the sector are doing well is fraught with a lot of risk.

[Basil]

Latest research from Craigs 9 July titled "SALES SIZZLE" out just after SUM's stunning first half sales result the other day.
Rating, OUTPERFORM.
Price target $16.63
Underlying EPS forecasts for 2025 and future years, (rounded). $1.00, $1.07, $1.16
PE at $12 FY25 12.0, FY26 11.2, FY27 10.4

My observations yesterday separate to the above.
I also estimated FY25 eps at $1.
How have SUM weathered all the extraordinary challenges of the last 5 and a half years since I sold out just before Covid at around $9 ?
Underlying EPS FY19 47.0 cps
Underlying EPS FY24 87.6 cps
5 year CAGR of underlying EPS against severe housing, Covid and economic headwinds, a deeply impressive 13.26% per annum.
The only company in this sector that's left with a competitive fully integrated internal development model.
Now has the most competitive DMF in the sector at 25%, everyone else is on 30% or more.
Building what people want, vast majority is broad acre stand alone housing and the rate of development can be easily modulated to match demand.
Very large land bank here and decent one in Australia
The only company that has no legacy issues to deal with in terms of residents hanging around for a decade or even more on ultra cheap fixed weekly fees for life.
Their main competitor RYM has had to radically reduce its forward development book while SUM keeps trucking on.  This gives SUM a real opportunity in the years ahead to grow market share, especially with by quite some margin, the lowest DMF
Competitors have major problems at a village level with operational cash burn and headwinds from a much higher level of care in their business model
SUM will get immediate material tax advantages from the new investment boost scheme (20% immediate tax deduction) for new commercial buildings when they're delivered and have the biggest development program in the years ahead so will benefit disproportionately more than its competitors.

SUM have a LOT of significant advantages going for them, many of which confer a permanent competitive advantage over their competitors.
Despite all this they are priced below NTA and on forward metrics that really are completely out of line with their proven CAGR.
My thinking is the atrocious performance of RYM has really caused a lot of negative sentiment in this sector, none of which is deserved as far as SUM is concerned and has dragged SUM down.   I think Craigs are about right and this should be trading in the late $16 range.

On a forward PE of less than 12 and with a CAGR of 13.26% and a housing market that's come off about 30% in real terms over the last 4 years and now at face value seems to have stabilized, I think long term holders will do well buying here.  Not a quick road to riches but I expect solid progress in the years ahead.  SUM in a class all of its own compared to how the others have handled the challenges in recent years.
Disc: Have established a small position.  Best of breed by a VERY VERY long way.

Final thought.  That sales result the other day was so good it would shake anyone with an interest in this sector out of their slumber.  It's certainly piqued my interest and I am very happy to be back on the share register with SUM again.  Have always liked how this company has been run...just a case for me of waiting for the strong headwinds to abate.  I'm very impressed with how SUM have grown EPS over the last 5 years.

 

[Basil]

Sorry,  a few other things I forgot to include which are HUGE for me.
1. Highly experienced management team I trust and have complete confidence in. Scott Scouller has been there since 2014 as CFO and was Julian Cook's protégé and has now had many years at the helm as CEO and has a proven ability to drive underlying EPS growth.   Similar length of service for head of construction Dean Tallentire.  Proven development and delivery systems that deliver proven growth.
2. To the best of my knowledge they have never missed a new build delivery target since they listed.  They just keep doing what they say they're going to do.  100% credibility.
3. There's a clear focus as part of their purpose on delivering satisfactory returns to shareholders...as opposed to others that don't even have this in their business mandate
4. Executive remuneration seems fair and reasonable for a company of this size
5. They actually pay a reliable dividend, albeit a modest one.
6. Last but not least by any means, I checked in with top gun guru TA specialist KW on the TA and she said it looks quite encouraging.

Added a few more as a long term hold.

[Greekwatchdog]

Results out

https://www.nzx.com/announcements/457627

[Basil]

Very impressive performance.  No sure how anyone could fault that result.

[winner (n)]

I like this from the presentation - Estimated NTA uplift approx $12.30 per share when all villages under construction are completed.

Jeez, current NTA is $13.18

They saying in a few years time NTA will be well over $25.00 ...mayb

[KW]

I like this from the presentation - Estimated NTA uplift approx $12.30 per share when all villages under construction are completed.

Fixed that for ya

[Greekwatchdog]

For Bar Review

Summerset (SUM) reported annuity earnings down -28% year on year, its lowest since the COVID-impacted 1H20. The weak result was driven by declining village deferred management fees (DMF), higher opex, and refurbishment costs. Cash conversion of both resales and new sales was the worst on record. Net debt increased by +22% year on year. But it wasn't all bad news. SUM stuck its neck out and guided for largely flat net debt from FY25 onwards—a marked change from the last five years, when net debt increased by a factor of 3x. NTA continued to grow strongly, in contrast to peer Ryman Healthcare, and contracted sales were up ~+30% year on year in July/August 2025; the future looks brighter. If SUM delivers on expectations of a substantial acceleration in cash generation and sales over the next 12 months, not least in Australia, the stock could do well. But it is a big if. SUM is likely to face headwinds in both DMF and resales cash flow as NZ approaches a full cycle of flat house prices, like-for-like cost inflation continues, and the recovery in house prices remains pedestrian. Retain NEUTRAL with a slightly reduced target price.

What's changed?
Earnings: Annuity earnings reduced >-20%, given lower DMF, lower care fees, and higher opex.
Target price: Reduced to NZ$11.70 (from NZ$12.10), due to reduced earnings, partly offset by roll-forward.
Annuity earnings were the weakest in five years—should grow strongly from here
SUM reported its lowest annuity EBITDA margins since the COVID-impacted FY20, as opex outgrew revenues. Below the line, D&A, refurbishment costs, and interest meant annuity earnings were down -28% year on year, to NZ10cps, -45% below our estimate. On a 12-month rolling basis, annuity earnings have been largely stable for five years. DMF, resale gains, as well as care and village fees have almost doubled, but the diseconomies of scale continue. Opex and below-the-(EBITDA)-line items outgrew revenues. We are optimistic this will improve going forward. Over the next two to three years, SUM will benefit from converting >750 care beds to care suites, which appears to have been well received by residents. Over time this should improve annuity earnings by >+NZ$20m. We expect the rest of the sector to take note. We have pushed out our earnings growth by 12 months and continue to expect a relatively rapid recovery; but at ~32x 24-month forward earnings, we see this as reflected in the share price.

Net debt higher than expected—but guidance inspires confidence
SUM reported its worst cash conversion of sales on record, which, in combination with continued high capex, drove net debt up ~+NZ$150m since FY24. While disappointing in 1H25, SUM stuck its neck out and guided the market to largely flat net debt from FY25 onwards; this would mark a sharp reversal of the last four years, when net debt grew on average by ~+NZ$300m annually. It will need both a meaningful recovery in sales and a reduction in capex, despite increased deliveries. A tall order, but achievable.

Earnings changes
We make relatively large reductions to our annuity earnings estimates. This is driven by reduced DMF (lower village DMF, partly offset by higher care DMF), lower care (fewer premium accommodation charges, given more care is to be sold under ORA) and village fees, higher opex, and increased D&A and refurbishment costs. These are only partly offset by higher resale gains and lower P&L interest. Our estimates for underlying earnings are reduced less, given increased estimates for new sales gains as we include the gains from transitioning to care suites.

[winner (n)]

Forbsr ravevabout annuity earnings being down >20%

Summerset say Annuity EBITDA up 5%

Suppose Forbar's annuity earnings not calculated same way as DpSummerset's Annuity EBITDA

Anybody how Forbar calculate such things    ....in the past they've never replied to my requests

[Basil]

I continue to believe that underlying profit is the best reporting metric and it was a very good result.  SUM is best of breed by a VERY long way.

I guess the big concern I have for the sector is the super normal profits of the past maybe won't ever repeat.  Share prices in this sector are inextricably linked to house prices and until the outlook for the latter improves, I've come around to the point of view its hard to see any company in this sector gaining meaningful traction, even SUM.   

https://tmmonline.nz/article/976524812/predicted-zero-growth-in-house-prices-good-for-first-home-buyers?utm_source=GR&utm_medium=email&utm_campaign=Flat+house+prices+open+door+for+first+home+buyers

[KW]

I continue to believe that underlying profit is the best reporting metric and it was a very good result.  SUM is best of breed by a VERY long way.

Their entire profit came from property revaluations ($109M profit from $123M in property revaluations).  Their total property assets were suddenly worth 18% ($1.3 Billion) more than last year. 

How much are they going to have to "revalue" their property portfolio up next year to achieve a profit?  

[ValueNZ]

You must be happy with the update Basil.

289 in 3Q 2024 sales v 420 3Q 2025.

[Greekwatchdog]

Good volume going thru today after todays positive update.

Well managered, happy holder. Was great buying in June 2023 for patient investor