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Summerset 1H profit beats estimates on fatter development margins

Tuesday 21st August 2012

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Summerset Group, the retirement village operator and developer beat first-half profit estimates as it squeezed a fatter margin from its developments, which have largely been brought in-house.

Net profit was $3.9 million, or 1.85 cents per share, in the six months ended June 30, compared to a loss of $1 million, or 0.67 cents per share, a year earlier, the Wellington-based company said in a statement. That beat Forsyth Barr analyst Jeremy Simpson's forecast of $1.3 million reported profit with earnings per share of 0.6 cents.

The profit came from better development margins as Summerset conducted its own project and cost management, design, and a growing percentage of its construction management. The development margin was 11.9 percent in the period, beating the initial public offering forecast of 10.5 percent, and well ahead of the 6.9 percent achieved in the 2011 financial year.

"The company is in a robust position and the team has been working incredibly hard over this half year," chief executive Norah Barlow said. "We are expecting to exceed IPO forecasts if trading momentum continues."

When Summerset floated on the stock exchange last year, it forecast annual net profit of $13.3 million and underlying earnings of $9.7 million in calendar 2012.

Summerset said underlying profit, which strips out unrealised movements in the value of its property portfolio, more than doubled to $6.9 million. Revenue rose 13 percent to $18.2 million, with a 12 percent gain in care fees and village services and a 14 percent lift in deferred management fees.

The company made 83 new sales of occupation rights for gross proceeds of $28.8 million up from 41 sales raising $13.9 million in the first half of 2011. Resales of occupation rights rose 52 percent to 88, realising gains of $4.2 million for the company.

In April, the retirement village operator bought 7.6 hectares in Auckland's Hobsonville as it looks to target the ageing population in New Zealand's biggest city.

Summerset built 68 new units across four developments in the six-month period, and expects to reach its annual target of 155 units by year's end.

The board didn't declare an interim dividend, but expects to declare a full-year return for shareholders.

The shares were unchanged at $1.95 in trading yesterday, and have climbed 46 percent this year. The stock is rated an average 'outperform' based on three analysts' recommendations compiled by Reuters, with a median target price of $1.74.

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