Greater risk of a volcanic eruption , let's face it there is risk everywhere . Christchurch was an unknown fault line , they have found some more near the latest quake . Who's to say there are not unknown fault lines near or through Auckland .
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Some good questions for people to ponder. It is said that as a company gets really big it becomes intrinsically harder to grow and perhaps we have a good example of that with Ryman ?
As followers of this thread will know, Winner69 and I went out on a limb in early 2014 and called the SP as overdone, (at around the current level) and suggested we could be in for some years of relative underperformance.
Two and a half years later here's how I see it.
Based on the mid point of the forecast range 180 / 500m = underlying eps of 36 cps.
Being a little kind, (they are N.Z.'s premier growth stock) and assuming they can grow over the next 7-10 years at the average rate of the last 3 years (15%) and using my own variation of Ben Graham's valuation formula where the PE is the no growth 8.5 + 1G where G = average forecast growth I see RYM as good value at a forward PE of 23.5. 23.5 x 36 = $8.46. The shares are fair - good value in my opinion at the current price.
Turning now to SUM - Growth over the last 4 years + this year's forecast, keep in mind SUM balance date is 31 December
2012 15.2 / 8.1 = 87.6%
2013 22.1 / 15.2 = 45.3%
2014 24.4 / 22.1 = 10.4%
2015 37.8 / 24.4 = 54.9%
2016F 54 / 37.8 = 42.9%
EPS based on forecast for FY16 54 / 220.5m shares = 24.5 cps.
Now the really hard part, what forward PE to use for SUM ? Average growth the last 3 years = 36% Average growth the last 5 years = 48.2%
No question a lot of this growth has come off the back of the company learning and evolving its development model.
What growth rate to assume for the next 7-10 years...a very difficult question to answer !
Lets assume they can grow at the same 15% rate as RYM...this would appear to be a safe harbour position as they're still a young company growing and learning quickly and its quite possible we could see a few more years of growth outperformance as Bjauck has suggested.
Apply the same PE as for RYM, (there is definitely a persuasive argument for using a higher PE in my opinion), based on average growth over the last 5 years being substantially more and based on a superior land bank, (SUM have 7 years supply), but let's be a conservative bean counter today and stick with 15% average forecast growth and use the same PE for RYM 23.5 times current year's earnings. SUM are Good value at 24.5 x 23.5 = $5.75. Once we have some confirmed stability in the market, (Trump doesn't do anything totally outrageous to undermine the market, yet to be determined in my opinion) then SUM would still be my preferred investment vehicle in this sector.
Conclusion - The current SP of SUM gives a decent safety margin to its theoretical value based on my model using very conservative forward growth expectations.
RYM appears to be fair - good value but without a safety margin.
Disc: I don't bother with any analysis on MET and don't presently own shares in any of these companies, (Trumped out at present)
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Trains slow down a bit the more wagons you hitch on them. The timeline for my RYM, MET & SUM shares are beyond 5 years+. They are not your get-rich-quick shares anymore but will most likely return more p.a. than term deposits or bonds.
Quick back of the envelope comparative factoids:
November: RYM first half underlying profit up by 9%; NPAT up by 41%; Occupation rights sales up by 9.4% (my calculation: 594 this year/543 last year)
August: SUM first half underlying profit up by 44%; NPAT up by 42%; Occupation rights sales up by 13%
SP price performance since 30 Jun 2016:
SUM up by 10% (4.86/4.38)
RYM down by 8% (8.58/9.33)
...and Global warming and rising sea levels for coastal communities. Too true about Auckland...although currently known risks are what we should act on. I think the risk of another volcano appearing in the Auckland Volcanic Field is less than another earthquake on the currently known fault lines - but how much do we really know....
These results further highlight the supremacy of SUM as an investment, with its profit growth rates being nearly 5 or 6 times higher than Ryman. I would be cautious about where RYM's SP heads over the next few years in the face of such underwhelming growth in recent times :)