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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Summerset Group Holdings / Equity Bottom-Up

<h2>Summerset Group</h2>
3Q19 Springs Into Action
Summerset Group (SUM) reported its 3Q19 unit sales which were up +11.5% underpinned by strong resales up +33% versus 3Q18 and it has signalled that demand remains robust and vacancy low. SUM is on track to hit our FY19 sales expectations and we have not changed our forecasts or target price. Our rating remains OUTPERFORM.
Resales volumes very positive as occupancy remains high
Resales volumes in 3Q19 were 88 units, up considerably on the 66 units in 3Q18, with SUM maintaining solid occupancy rates across its villages resulting in little vacant resales stock. This was SUM’s strongest quarter for resales in two years. SUM’s YTD resales volume is 75% of our FY19 forecast resales of 308 units indicating SUM is on track in FY19.
New sales broadly in line but requires elevated 4Q19
SUM sold 77 new units in 3Q19, in line with 82 in the pcp. This is slightly below our forecast run rate for FY19 new sales of 333 units, although SUM noted that presales for its three new villages have been strong supporting a lift in 4Q19. The 4Q is historically a strong sales period and this year it is helped by the timing of new stock. We require new sales of 120 units to hit our FY19 forecast, compared with the average 4Q sales over the last three years of 109 units.&nbsp;&nbsp;
No FY19 earnings guidance comments – development on track
The existing development guidance is 350 new units which implies a very busy 2H19.&nbsp;The near-term development focus is the remaining independent living units at Rototuna (Hamilton), Casebrook (Christchurch), Ellerslie (Auckland) and at its new villages at Kenepuru (Wellington), Richmond (Nelson) and Avonhead (Christchurch). The next news is likely the Environment Court decision on Lower Hutt which is expected shortly.
Aussie a new area of growth
SUM’s large pipeline was inflated by the recent acquisition of its first Australian site in Melbourne raising its pipeline to 5,078 units. This move was well signalled and in line with its strategic direction, and we expect SUM to benefit from the high demand for an integrated full continuum of care village offering.
Figure 1. Quarterly Sales track
<table class="table table-striped">
<thead>
<tr>
<td></td>
<td>
3Q18
</td>
<td>
4Q18
</td>
<td>
FY18
</td>
<td>
1Q19
</td>
<td>
2Q19
</td>
<td>
3Q19
</td>
<td>
chg % 3Q yoy
</td>
<td>
2019 YTD Actual
</td>
<td>
%FY19 Achieved
</td>
<td>
FY19
</td>
</tr>
</thead>
<tbody>
<tr>
<td>
New sales
</td>
<td>
82
</td>
<td>
112
</td>
<td>
339
</td>
<td>
71
</td>
<td>
65
</td>
<td>
77
</td>
<td>
-6.1%
</td>
<td>
213
</td>
<td>
64.0%
</td>
<td>
333
</td>
</tr>
<tr>
<td>
Resales
</td>
<td>
66
</td>
<td>
81
</td>
<td>
301
</td>
<td>
66
</td>
<td>
76
</td>
<td>
88
</td>
<td>
33.3%
</td>
<td>
230
</td>
<td>
74.7%
</td>
<td>
308
</td>
</tr>
<tr>
<td>
Total
</td>
<td>
148
</td>
<td>
193
</td>
<td>
640
</td>
<td>
137
</td>
<td>
141
</td>
<td>
165
</td>
<td>
11.5%
</td>
<td>
443
</td>
<td>
69.1%
</td>
<td>
641
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, Company Reports&nbsp;
<div class="content-highlight">
Investment View
SUM continues to strengthen its development and operational track record and has a land bank of over six years. There remains significant long-term growth potential from demographic trends and SUM has the expertise to capitalise on these themes. Execution risk is increasing near-term as it tackles large and intensive Auckland developments late in the cycle but the business remains very well placed over the longer term. At current pricing SUM is getting very little credit for its operational and development track record since listing. OUTPERFORM.&nbsp;
</div>
Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Summerset Group
3Q19 Springs Into Action
Summerset Group (SUM) reported its 3Q19 unit sales which were up +11.5% underpinned by strong resales up +33% versus 3Q18 and it has signalled that demand remains robust and vacancy low. SUM is on track to hit our FY19 sales expectations and we have not changed our forecasts or target price. Our rating remains OUTPERFORM.
Resales volumes very positive as occupancy remains high
Resales volumes in 3Q19 were 88 units, up considerably on the 66 units in 3Q18, with SUM maintaining solid occupancy rates across its villages resulting in little vacant resales stock. This was SUM’s strongest quarter for resales in two years. SUM’s YTD resales volume is 75% of our FY19 forecast resales of 308 units indicating SUM is on track in FY19.
New sales broadly in line but requires elevated 4Q19
SUM sold 77 new units in 3Q19, in line with 82 in the pcp. This is slightly below our forecast run rate for FY19 new sales of 333 units, although SUM noted that presales for its three new villages have been strong supporting a lift in 4Q19. The 4Q is historically a strong sales period and this year it is helped by the timing of new stock. We require new sales of 120 units to hit our FY19 forecast, compared with the average 4Q sales over the last three years of 109 units.&nbsp;&nbsp;
No FY19 earnings guidance comments – development on track
The existing development guidance is 350 new units which implies a very busy 2H19.&nbsp;The near-term development focus is the remaining independent living units at Rototuna (Hamilton), Casebrook (Christchurch), Ellerslie (Auckland) and at its new villages at Kenepuru (Wellington), Richmond (Nelson) and Avonhead (Christchurch). The next news is likely the Environment Court decision on Lower Hutt which is expected shortly.
Aussie a new area of growth
SUM’s large pipeline was inflated by the recent acquisition of its first Australian site in Melbourne raising its pipeline to 5,078 units. This move was well signalled and in line with its strategic direction, and we expect SUM to benefit from the high demand for an integrated full continuum of care village offering.
Figure 1. Quarterly Sales track





3Q18


4Q18


FY18


1Q19


2Q19


3Q19


chg % 3Q yoy


2019 YTD Actual


%FY19 Achieved


FY19






New sales


82


112


339


71


65


77


-6.1%


213


64.0%


333




Resales


66


81


301


66


76


88


33.3%


230


74.7%


308




Total


148


193


640


137


141


165


11.5%


443


69.1%


641




Source: Forsyth Barr analysis, Company Reports&nbsp;

Investment View
SUM continues to strengthen its development and operational track record and has a land bank of over six years. There remains significant long-term growth potential from demographic trends and SUM has the expertise to capitalise on these themes. Execution risk is increasing near-term as it tackles large and intensive Auckland developments late in the cycle but the business remains very well placed over the longer term. At current pricing SUM is getting very little credit for its operational and development track record since listing. OUTPERFORM.&nbsp;

Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Summerset Group: 3Q19 Springs Into Action