Originally Posted by
Grunter
First time poster here, have been following this thread for a while since I became interested in Summerset.
Just want to say I believe a lot of you worry about a lot of things that don't matter in the long run to the performance of this company.
The guy with the best ideas on this company is Roger - he's hit the nail on the head on how to value retirement villages - it's all to do with underlying earnings. The drivers for underlying earnings growth are:
1) house price growth
2) the number of units that can be built, sold and resold
Everything else to do with this company is just noise.
Looking at Summerset, I see it as grossly undervalued - Summerset should be a similar performer to Ryman in terms of earnings growth in the long term, and I believe their P/E should converge to a similar level. For a growth company, a P/E of 11 is low, therefore RYM's 15 is more sensible in this climate of inflated P/E ratios. Given this, the value of SUM should be $5.85 at their current earning level.
I'm working on building a DCF model for SUM, but a year ago, their DCF valuation was $4.30. Since then they have had significant increases in underlying earnings as well as increased build rates, so this points to even better than predicted underlying earnings growth than originally modelled.