SUM Summerset Group

[Dolcile]

If SUM can get the EBITDA per care bed up to $25k then I think we are having a different conversation. 

At that point we have three aspects of the business all playing there part:

1. ILU's kicking off DMF that isn't absorbed by operations
2. Development business generating margin on sale OR if development slows then the liberation of investment capital
3. free cash flow from care

[Popeye]

SO what is the business model?  Lend us the money to build the place, give us 3% or so per annum to maintain ("manage") it, and we will throw in day-to-day operating expenses at cost, care costs at or below cost.  In return for keeping anything left over at the end.  Plus development margin, if any.  Or to give residents a pleasant place to live for the rest of their years at cost, in the hope of being able to cream a bit more cash off the new resident if the property market cooperates?

It may be a flawed business model, as it does not seem to work in a flat or slow growth environment no matter how well run the business is.  Despite all the free capital they all seem to end up weighed down with debt, and thus exposed to another environment factor, interest rates. 

Maybe a better model would be more based around the value proposition they are actually providing, which is a worry free living ecosystem tuned to the physical, financial and psychological needs of aging residents.  After all, this must why people move in, and why new buyers were prepared to hand over capital appreciation upside even during the boom years.  I would be more comfortable investing in an entity that makes their money from providing the living experience to residents, rather than from a ponzi scheme that only delivers if the real estate market booms.  To do this you would need to migrate to a fees structure that generates an ongoing and reliable bottom line from operations, even if this mean abandoning or attenuating the inherently risky capital appreciation upside.

However I dont see how the RV operators can easily get out of the model they have locked themselves in to, which is why I agree with the comments that NTA is meaningless in the context of a going concern, and until and unless there is consistent cash generation the investment case is more hope than anything, no matter how well run the business is...

[winner (n)]

I take it that the projeced doubling of NTA when the existing development pipeline  is
completed and sold is now just a pipe dream

Scott better keep quite aboutvthatvforcacwhile

ASM next week could be interesting in view of SUM being a dog stock these days

And also wondering if Kingfish will realise model broken and dispose of them.

[Basil]

Market appeared unimpressed by what was said at the ASM. Talk of house prices under one possible scenario doing nothing for 5-10 years obviously didn't help and would have come as a rude awakening for some shareholders. Closed at $7.99, multi year low.  Down ~36% from $12.40 year to date in less than 4 months. 

At times like this fundamental analysis takes a back seat to technical analysis in my opinion.  Wait for a confirmed bottoming pattern on the chart and a new uptrend to start.  That might not happen for quite some time, possibly years.  At ~ $5 it would be paying a ~ 5% and growing dividend yield.
For me its now a "show me the money story" for SUM.   Going down to under half NTA would not surprise me because there's so little return on assets.

Consider this:-
6 years ago SUM was $9, now $7.99.
9 years ago OCA listed at 79 cents, now 72 cents after raising capital at $1.30 several years ago.
12 years ago RYM was $8.50, now struggling at $2.09 after raising $2 Billion in capital
By comparison the property market peaked in late 2021 and has only been going down for 4.5 years.  The share price performance of these companies strongly supports my contention that the business model of these companies is basically broken.

I think the SUM board need to realise that the market is no longer "buying" the capital gains model.  RYM destroyed so much shareholder value over the last decade or so its completely trashed the sector for the others. The market says their business models are B.S., they don't work anymore. SUM says there's good cash flow, I say prove it and show shareholders the money and start paying a decent dividend otherwise the languishing of the share price could continue almost indefinitely.