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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Summerset Group Holdings / Equity Bottom-Up

<h2>Summerset Group (SUM)</h2>
Strong 1H, our First COVID Read-through suggests little demand destruction
Summerset Group (SUM) has announced total sales of 123 retirement village units for the quarter to 30 June 2020, implying a full return to normality in June and some decent activity in May. SUM’s quarterly release provides the first “hard data” insight across the Aged Care sector into the impacts of COVID-19 lockdowns on sales activity given SUM’s last quarterly sales release only incorporated 1 week of alert level 4 lockdown. New sales were 58 and resales were 65 reflecting the impacts of no sales activity in April given 4 weeks in alert level 4 lockdowns with prospective residents unable to visit villages and property settlements suspended. Visitor restrictions were also in place throughout levels 3 and 2. SUM’s quarterly release commentary is consistent with recent anecdotal feedback across the sector that demand post lock downs has been very strong likely a combination of pent up demand and improved sentiment towards the sector as whole. &nbsp;
Sales activity exceeds internal sales activity expectations
Across the sector, we assumed no sales activity in April, very little in May and the beginning of a return to normality in June. SUM’s Q2 sales activity materially exceeds these estimates, in particular new sales activity, likely driven by pent-up demand and improved consumer sentiment towards the retirement village product with COVID-19 lockdowns further showcasing the benefits of the integrated model. SUM note “sales and settlements have largely recovered and are seeing sales enquiry and sales rates&nbsp;marginally stronger than is typical for this time of year”
1H20 guidance
<ul>
<li>Underlying profit guidance: SUM have provided the market guidance of between NZ$40m – NZ$45m, this guidance is between 6% and 16% lower relative to 1H19. This compares to our most recently published numbers of FY20 underlying profit of NZ$40.2m. A flat H2 vs pcp would give NZ$99-104m, 38-44% above current BB consensus.</li>
<li>Build rate: Sum note they are on track to reach its revised year end build target of 300-350 new units (down from 400 pre COVID-19)</li>
<li>Dividend: Given SUM’s strong balance sheet position of ~NZ$350m of unutilised funding capacity they anticipate to be in a position to pay an interim dividend.</li>
</ul>
Table 1: Quarterly sales track
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 81.8pt;">
&nbsp;
</td>
<td style="width: 42.8pt;">
1Q19
</td>
<td style="width: 42.8pt;">
2Q19
</td>
<td style="width: 42.8pt;">
3Q19
</td>
<td style="width: 42.8pt;">
4Q19
</td>
<td style="width: 42.8pt;">
FY19
</td>
<td style="width: 42.8pt;">
1Q20
</td>
<td style="width: 42.8pt;">
2Q20
</td>
<td style="width: 72.2pt;">
% change pcp
</td>
</tr>
<tr>
<td>
New Sales
</td>
<td>
71
</td>
<td>
65
</td>
<td>
77
</td>
<td>
116
</td>
<td>
329
</td>
<td>
70
</td>
<td>
58
</td>
<td style="width: 72.2pt;">
-11%
</td>
</tr>
<tr>
<td>
Resales
</td>
<td>
66
</td>
<td>
76
</td>
<td>
88
</td>
<td>
93
</td>
<td>
323
</td>
<td>
71
</td>
<td>
65
</td>
<td style="width: 72.2pt;">
-14%
</td>
</tr>
<tr>
<td>
Total
</td>
<td>
137
</td>
<td>
141
</td>
<td>
165
</td>
<td>
209
</td>
<td>
652
</td>
<td>
141
</td>
<td>
123
</td>
<td style="width: 72.2pt;">
-13%
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, Company reports
Aaron Ibbotson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
P: +64 9 368 0024 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Summerset Group (SUM)
Strong 1H, our First COVID Read-through suggests little demand destruction
Summerset Group (SUM) has announced total sales of 123 retirement village units for the quarter to 30 June 2020, implying a full return to normality in June and some decent activity in May. SUM’s quarterly release provides the first “hard data” insight across the Aged Care sector into the impacts of COVID-19 lockdowns on sales activity given SUM’s last quarterly sales release only incorporated 1 week of alert level 4 lockdown. New sales were 58 and resales were 65 reflecting the impacts of no sales activity in April given 4 weeks in alert level 4 lockdowns with prospective residents unable to visit villages and property settlements suspended. Visitor restrictions were also in place throughout levels 3 and 2. SUM’s quarterly release commentary is consistent with recent anecdotal feedback across the sector that demand post lock downs has been very strong likely a combination of pent up demand and improved sentiment towards the sector as whole. &nbsp;
Sales activity exceeds internal sales activity expectations
Across the sector, we assumed no sales activity in April, very little in May and the beginning of a return to normality in June. SUM’s Q2 sales activity materially exceeds these estimates, in particular new sales activity, likely driven by pent-up demand and improved consumer sentiment towards the retirement village product with COVID-19 lockdowns further showcasing the benefits of the integrated model. SUM note “sales and settlements have largely recovered and are seeing sales enquiry and sales rates&nbsp;marginally stronger than is typical for this time of year”
1H20 guidance

Underlying profit guidance: SUM have provided the market guidance of between NZ$40m – NZ$45m, this guidance is between 6% and 16% lower relative to 1H19. This compares to our most recently published numbers of FY20 underlying profit of NZ$40.2m. A flat H2 vs pcp would give NZ$99-104m, 38-44% above current BB consensus.
Build rate: Sum note they are on track to reach its revised year end build target of 300-350 new units (down from 400 pre COVID-19)
Dividend: Given SUM’s strong balance sheet position of ~NZ$350m of unutilised funding capacity they anticipate to be in a position to pay an interim dividend.

Table 1: Quarterly sales track




&nbsp;


1Q19


2Q19


3Q19


4Q19


FY19


1Q20


2Q20


% change pcp




New Sales


71


65


77


116


329


70


58


-11%




Resales


66


76


88


93


323


71


65


-14%




Total


137


141


165


209


652


141


123


-13%




Source: Forsyth Barr analysis, Company reports
Aaron Ibbotson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
P: +64 9 368 0024 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Summerset Group (SUM): Quarter 2 Sales Activity and 1H20 Earnings Guidance