ARV - Arvida Group

[winner (n)]

Back to focusing on Arvida

Guru analysts at Jarden's kept their overweight rec.



Nevertheless, they retained their "overweight" recommendation on Arvida shares, saying near-term earnings would be offset by longer-term gains as Arvida executes on its strategy. "Importantly, we assume the key drivers of the downgrade to full-year 2023 are transitory," they said. They actually raised their 2024 forecast by $1m to $111m. But they shaved 2c off their 12-month target share price, to $1.58.

Arvida's profit downgrade seen as 'transitory'

https://businessdesk.co.nz/article/infrastructure/arvidas-profit-downgrade-seen-as-transitory

[Basil]

What happened to all the talk about acquisitions being eps accretive ?
What happened to the increased build rate adding to underlying eps ?

All the talk that FY23 was going to see huge growth in eps has come to nothing.

[BlackPeter]

BP in case you were referring to shareprices here's how share prices have gone since listing

I'm getting worried about you as well - you seem to have become enamoured with this Oceania and maybe lost your normal objectivity about things. Not like you to so stringently defend your new love when its criticied

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Yes, I was talking share prices ... and while the OCA line is clearly lower (as I said in my post as well) - they had their first half in a different time (including Covid et all).

Not falling in love with OCA either ... and always interested to hear the other side of any argument. It is just - if the counterargument is starting to sound like a broken record and not even factual correct, than I start to wonder. Wouldn't you?

[Ferg]

It would be nice to read about Arvida in the Arvida thread and people building on other work etc. Yet again it has degenerated into OCA versus SUM when that was not what was being discussed in earlier posts.  It's actually kind of sad.  It would be nice to learn something from learned posters so thanks to those for trying to bring it back on track with facts rather than hyperbole.

[winner (n)]

Back to talking about Arvida

Arvida getting into the habit of talking really positive and setting high expectations and then not delivering on them.

Like at the time they announced the Arena acquisition they indicated FY22 Underlying Earnings would be $67m plus 5 months of Arena. FY22 proforma guidance for Arens was $32m-$34m so lets say Arvida would have got $14m giving total group profit of $81m

They delivered $73.5 Underlying Earnings - a miss of $7.5m. Arena contributed $14.9m (a better than expected) which means the rest of the business contributed $58.6m - some 13% short of the expected $67.0m though was 13% more than the FY21.

Come FY23 Arvida still talked growth etc etc etc setting expectations of Underlying Earnings of at least $105m. This assumed modest growth as well as 12 months of Arena.

The news yesterday showed that first half realised gains on sales are likely to be 70% up on last year - so good start to the year but then they gave that veiled profit 'downgrade' for the full year.

Working with those statements about dividends etc it seems that FY23 Underlying Earnings will be about $83m (my workings)

Jardens reported that what was said could imply $86m and reduced their forecasts from $101m to $88m

Whatever eventuates its clear that Arvdida missed FY22 earnngs expectations big time and are on thrack to miss FY23 expectatons big time as well.

Not  very good record Arvida - no wonder your share price was in the 130's yesterday

[winner (n)]

Last year when the share price was over $2.00 I was inclined to believe TraderJackson and think ARV was very undervalued

The Arena acquisition seemed exciting and from the Arvida talk at the time I put a value of about $2.70 on them. The capital raise was at $1.80 so even more of a bargain I thought But with many cap raises the share price weakened before the due date which put me off as often prices continue to fall even further. So it has happened.

The EPS trend that backed up my $2.70 valuation is shown below --- not going to get anywhere that F23 forecast.

One day ARV might be a good buy again .... wait and see is the game

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[Shareguy]

Last year when the share price was over $2.00 I was inclined to believe TraderJackson and think ARV was very undervalued

The Arena acquisition seemed exciting and from the Arvida talk at the time I put a value of about $2.70 on them. The capital raise was at $1.80 so even more of a bargain I thought But with many cap raises the share price weakened before the due date which put me off as often prices continue to fall even further. So it has happened.

The EPS trend that backed up my $2.70 valuation is shown below --- not going to get anywhere that F23 forecast.

One day ARV might be a good buy again .... wait and see is the game

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I agree with you Winner. Only have a small holding which I will sell if I don't see any improvement.

[Whacc]

An interesting question to which I suspect you already know the answer.  The capex cost and/or sale price for a suite would be half or less than an ILU.  Both are subject to 30% ORA, although a term under 3 years would not see the full 30% realised.  A care suite with a tenure of 2.5 years would have a management fee of 15% year 1 + 10% year 2 + half of 5% for year 3 = 27.5%.  Average tenure for an ILU is say 7.5 years.  It appears the management fees for a suite would recycle almost 3 times faster than an ILU.

Let's test that.

In 7.5 years an ILU at a sale price of say $500k would earn ($500k x 30% ORA=) $150k in Management Fees.  Average of $20k p.a.

In 7.5 years 2 x suites at a sale price of say $250k each would earn ($250k/suite x 2 suites x say 27.5%ORA x 3 rollovers =) $412k in Management Fees.  An average of $55k p.a.

So the management fees would be 55/20 = 2.75 times higher for the capital invested, assuming both had a similar development margin.

To put this into a cashflow would require assumptions around development margins.  To avoid that, I will work on sale prices instead.  The ILU returns 30% of the sale price over 7.5 years in cash.  Whereas two care suites with the same total cost as the ILU returns 82.5% of the sale price over the same time period.

Interesting indeed.

Yup, even moreso when you run an IRR across those calcs (and even if you assume an ILU tenure of ~5 years for apartments).

I take the point that models are only as good as the assumptions but, whichever way you cut it, care suites are vastly superior to ILU on a time-value-of-money basis.  Forget about fake metrics like 'underlying profit', this game is all about recycling cash flow.

[winner (n)]

Jeez, RV share price closed at $1.38

Spent most of 2019 around this level .....spiked to 190 odd at end of December - collapsed due to Covid but got to 213 mid 2021 and been down hill ever since

Update not well received

[Basil]

Update is hard to understand eh Winner.  You've got a full year contribution from the Arena acquisition in FY23 v part year last year, increased build rate, selling more units from a higher embedded value level and earnings per share are headed down ?  Hard to escape the conclusion that we were sold a 'pup" last year with that big placement.  Glad I took the hit on the chin like a man and sold a while back.  Something really not right here...

Not going there on the care suites v ILU's debate any further and wasting more of my time.  Results speak for themselves over the years.  If people want to believe it'll be different going forward, all power to them and good luck with that.  What's clear is the tide is going out on the whole sector with volumes of real estate sales and prices declining at a very rapid rate as well as all the other issues I've talked about at great length already.  All boats fall on an outgoing tide.... reluctantly I've come to expect that probably includes SUM.  I've decided to exit this sector completely and will revisit SUM when the TA looks better.
Swimming against an outgoing tide is very tiring and unrewarding.

[Basil]

This might shed a bit more light on the issue.  Auckland Catholic rest home losing $100,000 per month ponders closure, paywalled https://www.nzherald.co.nz/business/auckland-catholic-rest-home-ponders-closure-after-losing-100000month/RGEJ73DOH5VRUCCB7IOK7GOPWM/
Key Takeaway.  You just cannot get staff. 

[BlackPeter]

This might shed a bit more light on the issue.  Auckland Catholic rest home losing $100,000 per month ponders closure, paywalled https://www.nzherald.co.nz/business/auckland-catholic-rest-home-ponders-closure-after-losing-100000month/RGEJ73DOH5VRUCCB7IOK7GOPWM/
Key Takeaway.  You just cannot get staff. 

Another standalone old peoples home run by volunteers, on goodwill and by staff paid under market rates biting the dust.

Tragic for the organisation and for the residents.

However - it is times like these when in any industry the stronger competitors manage to build a base for further healthy growth. I recon this is a good sign for the big Four , given that the demand for the offered services certainly won't go away.

[Whacc]

However - it is times like these when in any industry the stronger competitors manage to build a base for further healthy growth. I recon this is a good sign for the big Four , given that the demand for the offered services certainly won't go away.

Exactly right.

It's like all the 1-ply toilet paper producers falling out of the market and leaving the 3-ply guys who only have so much stock.

What do you think is going to happen to the price of 3-ply?

[winner (n)]

ARV share price hit 135 earlier today

Made me think what the IPO price was

Late 2014 they raised $60m at 95 cents ... so those who bought in still ahead

That's about 5% pa ... with the dividends not too bad a return .... as long as you didn't participate in the other capital raises

[Hectorplains]

ARV share price hit 135 earlier today

Made me think what the IPO price was

Late 2014 they raised $60m at 95 cents ... so those who bought in still ahead

That's about 5% pa ... with the dividends not too bad a return .... as long as you didn't participate in the other capital raises

The IPO raised $80m.  Plus those who bought were encouraged to enjoy the feel good factor that 3 All Blacks were fellow shareholders.  All Blacks guaranteeing success in business... or something like that.