New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Arvida Group<br>Strong 2H Resales; Increased FY23 Confidence&nbsp;</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>We walk away from&nbsp;Arvida's&nbsp;(ARV)&nbsp;2H22 investor update with three key takeaways; (1) Arena Living is so far performing in-line with expectations, which we view as a clear positive.&nbsp;On our estimates Arena Living will contribute with about one third of annuity EBITDA in FY23; (2) organic resale gains appears&nbsp;to be growing strongly, likely driven by maturing Sanderson villages; and (3) operating expenses are elevated due to the Omicron outbreak.&nbsp; ARV&nbsp;estimates NZ$4–5m of additional costs in 2H22. This is broadly in-line with our estimates but we did not receive any information in relation to non-Omicron&nbsp;opex, something that remains a headwind for the sector. We leave our NZ$2.50 target price unchanged as increased WACC is offset by higher earnings and roll forward.&nbsp;</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22/23/24 underlying profit +14%/+4%/+3%. Annuity EBITDA +15%/+6%/+4%.</li>
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<h3>Resale gains&nbsp;— the good news story that delivers&nbsp;</h3>
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<p>Resale gains is the good news story in the sector. We estimate that the all important resale margins came in at ~28% in 2H22, up from a run-rate of 20–25% over the last few periods. The strength will be driven by the very high resale margins from Arena Living, which we estimate to be &gt;40%. Arena Living was only included for three quarters of 2H22, suggesting strong support for our FY23 expectations of 28% resale margins. Pleasingly, average resale unit prices increased +18% versus FY21, also likely helped by Arena Living related resales. We have increased confidence in our raised FY23 resale gains estimate of ~NZ$70m, +62% versus FY22 (+23% organically) and have increased our FY22 resale gains estimates by +NZ$9m to reflect the announced 2H22 numbers.&nbsp;&nbsp;</p>
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<h3>Operating expenses&nbsp;— the bad news story but appears in-line with expectations</h3>
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<p>Operating expenses is the bad news story in the sector. Here we didn’t get much news, as ARV doesn't report operating expenses within its sales release. ARV commented that it had ~NZ$4m–5m of additional COVID related costs in 2H22. We are looking for underlying opex growth of 12% in FY22 versus FY21 in addition to Arena Living and the announced Omicron additional expenses. We have increased our FY22 opex estimates by less than +1% and left our FY23/24 opex estimates unchanged.&nbsp;</p>
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<h3>ARV&nbsp;— one of the best risk rewards in an uninspiring NZ market</h3>
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<p>We view ARV&nbsp;as one of the most attractive risk rewards in an overall uninspiring NZ market.&nbsp;We expect strong organic and in-organic growth in FY23, up ~+50% versus FY22, and continued double digit growth thereafter as its villages mature and&nbsp;repricing&nbsp;of the Arena Living makes its way through to increased Deferred Management Fees (DMF). ARV&nbsp;is valued at ~1x book value, ~13x PE and ~18x EV/annuity EBITDA. This is an approximate 30–50% discount to&nbsp;Ryman&nbsp;(RYM) and&nbsp;Summerset&nbsp;(SUM) on a blended basis.&nbsp;</p>
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Arvida Group Strong 2H Resales; Increased FY23 Confidence&nbsp;

OUTPERFORM
We walk away from&nbsp;Arvida's&nbsp;(ARV)&nbsp;2H22 investor update with three key takeaways; (1) Arena Living is so far performing in-line with expectations, which we view as a clear positive.&nbsp;On our estimates Arena Living will contribute with about one third of annuity EBITDA in FY23; (2) organic resale gains appears&nbsp;to be growing strongly, likely driven by maturing Sanderson villages; and (3) operating expenses are elevated due to the Omicron outbreak.&nbsp; ARV&nbsp;estimates NZ$4–5m of additional costs in 2H22. This is broadly in-line with our estimates but we did not receive any information in relation to non-Omicron&nbsp;opex, something that remains a headwind for the sector. We leave our NZ$2.50 target price unchanged as increased WACC is offset by higher earnings and roll forward.&nbsp;


What's changed?&nbsp;



Earnings:&nbsp;FY22/23/24 underlying profit +14%/+4%/+3%. Annuity EBITDA +15%/+6%/+4%.



Resale gains&nbsp;— the good news story that delivers&nbsp;


Resale gains is the good news story in the sector. We estimate that the all important resale margins came in at ~28% in 2H22, up from a run-rate of 20–25% over the last few periods. The strength will be driven by the very high resale margins from Arena Living, which we estimate to be &gt;40%. Arena Living was only included for three quarters of 2H22, suggesting strong support for our FY23 expectations of 28% resale margins. Pleasingly, average resale unit prices increased +18% versus FY21, also likely helped by Arena Living related resales. We have increased confidence in our raised FY23 resale gains estimate of ~NZ$70m, +62% versus FY22 (+23% organically) and have increased our FY22 resale gains estimates by +NZ$9m to reflect the announced 2H22 numbers.&nbsp;&nbsp;


Operating expenses&nbsp;— the bad news story but appears in-line with expectations


Operating expenses is the bad news story in the sector. Here we didn’t get much news, as ARV doesn't report operating expenses within its sales release. ARV commented that it had ~NZ$4m–5m of additional COVID related costs in 2H22. We are looking for underlying opex growth of 12% in FY22 versus FY21 in addition to Arena Living and the announced Omicron additional expenses. We have increased our FY22 opex estimates by less than +1% and left our FY23/24 opex estimates unchanged.&nbsp;


ARV&nbsp;— one of the best risk rewards in an uninspiring NZ market


We view ARV&nbsp;as one of the most attractive risk rewards in an overall uninspiring NZ market.&nbsp;We expect strong organic and in-organic growth in FY23, up ~+50% versus FY22, and continued double digit growth thereafter as its villages mature and&nbsp;repricing&nbsp;of the Arena Living makes its way through to increased Deferred Management Fees (DMF). ARV&nbsp;is valued at ~1x book value, ~13x PE and ~18x EV/annuity EBITDA. This is an approximate 30–50% discount to&nbsp;Ryman&nbsp;(RYM) and&nbsp;Summerset&nbsp;(SUM) on a blended basis.&nbsp;


Arvida Group: Strong 2H Resales; Increased FY23 Confidence