Summerset 1H profit almost triples as it sold more rights and land value doubled, shares gain

Tuesday 13th August 2013

Summerset Group, New Zealand's third-largest listed retirement village operator, almost tripled first half profit as it sold more occupation rights and the value of its investment property more than doubled.

The company's net profit rose 174 percent to $10.8 million in the six months ended June 30, as revenue rose 16 percent, Wellington-based Summerset said in a statement. The shares are the second-best performer on New Zealand's benchmark index today, rising 3.3 percent to $3.10.

Summerset, whose shares have surged 57 percent in the past year, built 102 new retirement units in the first half and is on track to complete at least 200 by the end of the year, the company said today. Summerset has secured two new land sites, taking the total purchased this year to three and increasing its land bank to six years, based on an annual build target of 300 retirement units per annum by 2015.

"The result illustrates that the retirement industry remains in growth phase," said Rickey Ward, who holds the stock in the $450 million in equities he helps manage at Tyndall Investment Management.

The share price gain on the back of today's result will likely be capped by the potential future sell down of Quadrant Private Equity's remaining 23 percent holding in the company, Ward said.

Retirement village stocks are among the 15 best performing companies on the New Zealand stock exchange in the past year as investors anticipate growth supported by an ageing population. The nation's population over 75 years is forecast to double between 2011 and 2031, Summerset said in presentation notes accompanying its earnings today.

"With six villages under development and three main buildings under construction, we are in a good position to reach our full year target," said managing director Norah Barlow. "We have plenty of development projects in the pipeline and plenty of scope for growth."

The company said Barlow will step down as chief executive in the first half of 2014 after 12 years at the helm, but will remain a director on the board. Chief financial officer Julian Cook will replace Barlow after three years in his current role.

Summerset said it expects to pay a full-year dividend in line with policy, which is detailed in its prospectus as an intention to distribute 30 to 50 percent of underlying profit. The company's underlying profit, which strips out unrealised movement in the value of its properties, increased 45 percent in the first half to $10 million.

In the first half, the company sold 116 new occupation rights, 40 percent ahead of the year earlier period driven by its bigger portfolio and good demand. Resales of occupation rights fell 17 percent to 73 as it had less stock available, however it booked a similar cash gain as the margin increased on each sale. Sales of new units rose 50 percent to 102.

"We have seen sales of occupation rights grow strongly in the first half of the year and are seeing good waitlists in all of our villages," Barlow said.

First-half profit was boosted by better development margins as Summerset undertook its own construction management and design. The company will this year manage the construction on a majority of its building sites for the first time, Barlow said.

Summerset's development margin edged up to 12.4 percent in the first half, from 11.9 percent in the year earlier period. Strong sales in Warkworth and Hastings, where external contractors are still being used, weighed on the margin in the short term. However the margin was in line with its medium-term target of at least 17 percent on sites where it managed construction itself, the company said.

In addition, Summerset said it is considering buying its own materials and employing its own labour on sites.

The value of the company's property more than doubled to $10.1 million from $4.4 million in the year earlier.

Summerset said it continues to investigate potential opportunities which will increase its land bank.

Read the full report on Summerset

Financial Analysis on Summerset Group Holdings Limited

The report consists of Business summary, Share performance, Financial summary, Outlook, Management overview and Key ratio analysis. This report also comes with last 3 years historical information on the company’s Annual & Interim Income, Balance Sheet and Casflow statements as well as a graphical representation of key items. Total 15 pages.

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