ARV - Arvida Group

[Basil]

Jeremy (CEO) says

Morning ...., yes, our usual investor newsletter is due to come out mid-week, so you should see it in the next couple of days.  cheers

I doubled my holding again today.

Disc. Now have a sizeable holding

You know the old saying mate.  Big bait's catch big fish.  Good luck.

[Greekwatchdog]

Tomorrow we will find out assuming that's what they meant by Investor update middle of the week. Target $1.80 Brief summary below.

Arvida Group (ARV) has announced an amendment to its interest coverage ratio (ICR) covenant for its next four reporting periods, as well as the inclusion of all development gains into its earnings for its ICR calculations. This is in-line with our expectations as laid out in our report, "Tide is Going Out; Debt Coming to the Surface" published 23 March 2023. This should put to rest any near-term concerns that ARV would be pushed to raise capital at its current deep discount to book value by its banking syndicate. In addition, ARV increased its bank facility by a further +NZ$100m. ARV also commented that it has NZ$500m of drawn bank debt as at 31 March 2023 (FY23 year end), implying net debt of ~NZ$615m, ~+NZ$75m above our estimates and ~+NZ$55m above Visible Alpha consensus estimates. The deviation from our and consensus estimates is likely a consequence of higher capex rather than lower new-sales cash flow, but both could be contributing factors. We will await ARV's Q4 sales update (normally published in April) for a clearer picture.

What's changed?
Earnings: Underlying earnings -1%/-2%/-2% in FY23/FY24/FY25 on higher interest costs and slightly higher property related costs
Interest coverage ratio covenants now more in-line with peers
As stated in our report, "Tide is Going Out; Debt Coming to the Surface", ARV's ICR covenants were the most onerous in the sector. These amendments bring ARV closer in-line, its temporarily lowered ICR covenant to 1.75x adjusted EBITDA is the same level as RYM's. The inclusion of all development gains into its adjusted EBITDA (flagged at its 1H23 result) is now consistent with OCA and RYM. These changes greatly reduce ARV's risk of breaching its covenants over the next two years, and give it room should interest rates rise further. We estimate ARV's ICR at ~2.5x/~2.2x in FY23/FY24, sufficiently above its now 1.75x covenant. Come FY25, with a covenant return to 2.25x, we estimate ARV to be close should interest rates remain at these levels and net debt continue to grow.

Net debt higher on more capex
There are two main drivers of net debt build up; (1) lower new-sales cash flow, or (2) increased capex. We have assumed the latter with our capex estimate increasing +NZ$75m, allocated to land acquisitions and the seasonal effect of financial year end spending accelerating to meet delivery targets. Our net debt estimates increase by +13%/+13% in FY23/FY24 to NZ$609m/NZ$654m.

ARV is still attractive, trading at ~0.5x book, but FY24 focus will be on debt
The amendments to the ICR covenants remove a key near-term concern that ARV would undertake a dilutive rights issue. At ~0.5x book value, the lowest in the sector, we view ARV as highly attractive. In order for this substantial discount to unwind in FY24 we believe ARV will have to focus on stabilising or reducing net debt.   

[Shareguy]

You know the old saying mate.  Big bait's catch big fish.  Good luck.

Indeed. I don't think I will loose my rod, but I could loose my hook.

Tomorrow we will find out. Also interest rate decision (25 BP expected) but it's all about the commentary.

Will Arvida can the divi. Makes sense to me, certainly for next year, Otherwise build rate has to drop.

Will be an interesting update.

[Basil]

Yes, looking forward to the update.  I am a significant stakeholder through the bonds so am following this with interest, (pardon the pun) 

[Greekwatchdog]

Update

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ARV/409551/392164.pdf

[lorraina]

Read well to me.
In fact very positive.

[winner (n)]

Good on you shareguy for asking Jeremy when

Amongst the good stories and pretty pictures hopefully they'll give an indication of realised gains on sales. I reckon that could be over $50m for the last six months

That would mean for the full year realised gains of at least $93m and indicate underlying profit will be about about the same (probably more)

So lets say $95m Underlying Profit - pretty good compared to last years $73m

That should get some positive momentum into a rising share price

What was Forbar's target again?

Going from the chart in Investor News seems my 'forecast' is about spot on

So Underlying Earnings in F23 likely to be at least 20% up on F22

Pretty healthy eh

Betcha the likes of OCA won't be doing as well.

[Breezy]

Going from the chart in Investor News seems my 'forecast' is about spot on

So Underlying Earnings in F23 likely to be at least 20% up on F22

Pretty healthy eh

Betcha the likes of OCA won't be doing as well.

I wouldn't bet on it, ARV down 3% as we speak and OCA up, market giving middle finger to ARV.

[Greekwatchdog]

I am happy. Based on this and SUM/RYM result sector seems to be handling head winds ok.
 
We will just have to wait on OCA and see what they have got going on.

I will be adding more ARV should there be any more weakness below $0.90. Surely not?? Who knows.

[winner (n)]

H223 number of sales 298 but down from 327 same period last year

Resales up 3 on pcp but new sales fell from 123 to 91. They were down in first half as well

Just as well they were getting good prices and gains from resales otherwise full year result would be rather disappointing

What will be interesting is how much Arena contributed to full year results

Numbers indicative as per Newsletter

[winner (n)]

I wouldn't bet on it, ARV down 3% as we speak and OCA up, market giving middle finger to ARV.

Looks like eh

But somebody buying reasonable chunks to keep the price from falling too much

[Basil]

Interestingly they were talking at the half year of 270 new units this year, they somewhat disingenuously referred to 250 in this update and have "delivered" just 215 and have wound back FY24's target build rate to about the same down from an earlier indication of ~ 250.  Seems prudent in the circumstances.
Business seems to be travelling okay-ish considering the strength of the headwinds.
Best value of the sector by a very long way in my opinion but I still see no obvious catalyst for much of a share price recovery in the short term. 
Hard to know what the final result will be like, need to have a good look under the hood at the financials'.
Fortunately, with this one, they are an easy read.

[Basil]

Looked a bit harder into all this and gosh they really have wound back the build rate for FY24.
Stated to be about 250 as at late November 2022.
New number is the equivalent of FY23, i.e. about 215 units but that includes the 57 apartments at Aria Bay which were originally intended to be delivered in FY23 so actual new / new build target for FY24, (excluding projects that were originally intended for FY23 completion which are late), is only 158, nearly 100 lower than what was estimated in Nov 2022 !

Bit more...of the 215 new units "delivered" in FY23 63 are care suites and dementia units that while technically built and I suppose if you get creative you could say delivered... are still going through soft fit-out and audit compliance which isn't expected until June 2023 so actually can't be physically sold and handed over to new incoming residents until then.  Getting a little bit creative with the term "delivered" in my opinion....mind you I think most in this sector do similar creative things with their so called deliveries.  Lot of work to remediate all flood damage at Parklane.

With Adrianne Orr of the RBNZ seemingly determined to engineer a very hard economic landing and protracted recession, can they maintain earnings in FY24...that's the $64,000 question...applies to the whole sector in my opinion.

[Greekwatchdog]

For Bars update. Outperfrom Target $1.75

Arvida Group's (ARV) 4Q investor update gave us three main takeaways; (1) demand remains strong with the number of resales largely flat versus 2H22 (albeit we acknowledge two extra months of Arena Living), with both margins and price coming in ahead of our expectations and up versus last year. This bodes well for the sector overall and needs to be viewed against a backdrop of record low housing turnover. (2) New sales were weaker than anticipated with substantially fewer unit sales at lower margins but at higher prices; we believe the miss relative to our expectations relates to fewer care suites sold and a large proportion of deliveries weighted towards the very end of the financial year. (3) ARV is slowing down development. ARV delivered 215 units in FY23, below our 270 unit forecast and its 250 unit guidance as the delivery of 57 apartments in Aria Bay has been pushed to June 2023. More significantly, ARV guided to a similar delivery number in FY24, including Aria Bay. This suggests a material slowdown in build run-rate in FY24. We think this is the right thing to do and will look for more details on the implications for capex and free cash flow at the FY23 result.

What's changed?



Earnings: FY23/FY24/FY25 underlying profit +2%/0%/-1%. Annuity EBITDA +6%/-1%/-2%.
Target price: Decreased to NZ$1.75 (from NZ$1.80).


Prudent development management


ARV will complete 215 units in FY23, below its 250 target and our forecast of 270 units. The -55 deviation relative to our expectations reflects delays experienced at its 57 apartment Aria Bay apartment development (Browns Bay in Auckland). This is now expected to be completed in June 2023 (1H24). ARV moderated its FY24 build rate expectations to be "equivalent" to FY23. This will comprise of the 57 Aria Bay apartments, with the remainder being villas. With rising debt levels (and investor scrutiny), we view ARV's tempering of its build rate profile as prudent to manage forward debt levels. We lower our FY24 and FY25 net debt estimates by -2% and -4% respectively, reflecting lower capex.

[winner (n)]

Suppose it's a result of being a guru analyst but Forbar lowered target to $1.75

$1.75 awesome target ...assume that's what they reckon share price will be in years time.

Seems too good to be true