There are no surprises in Summerset’s FY20 announcement, with Underlying NPAT being almost exactly on guidance (released Dec 2020), though truthfully I was hoping for a bumper result due to record sales being published a month after the guidance was announced.
Not a very exiting result, but not bad when you consider that no sales could be made during the lockdown. Also, it’s been nice to see total NPAT increase by 32% against FY19, the difference of which being that total NPAT considers increase in value from property revaluations.
With a market cap of $2,876m against FY Underlying NPAT of $98.3m, excluding cash in the bank, that puts SUM on a ratio of just under 30. This is expensive based on Underlying earnings, or cheap based on NPAT. So depending on your reason for purchasing, SUM could be viewed as expensive or cheap; but here’s the crux: even if you’re investing based on the value of return in underlying value (i.e. not investing based on increasing NTA), NTA has an effect on NPAT: as property prices go up, customers must pay more to buy in, which means more profit. Additionally, as property prices go up, it becomes more favourable for potential customers to unlock the value in their homes and move into a Summerset property.
So what’s peaked my interest in Summerset recently? Well, because of my job I have a unique insight into the property sales data in a way that isn’t available to most. I was recently stunned by the latest sales data while I was investigating what I thought was a gross inaccuracy in some property price estimation software using this data. It seems that property prices are going wild, and my own home looks like it’s increased by 20%-30% within the last 2 months. I’ve not done a fully analysis, but I’ve looked at enough data to see that prices are going crazy.
Given that SUM’s share price doesn’t seem to have fully factored this in (based on a lack of change in the past 2 months), I think that SUM are a great buy right now for anyone with a longer term outlook (at least a year). Based on Underlying NPAT, a PE of less than 30 would require a return of +20% on next year’s earnings. Looking at Summerset’s prior performance and current state of the residential housing market, I think this is entirely possible. Even though risks from changes to the LVR scheduled in March could impact this, I feel comforted by the extended period of low interest rates which (as any property investor will tell you) makes property investment hum.