With a 300% share price rise in 10 months, why did brokers overlook this stock?

“Yeah, I think it has been overlooked,” conceded an investment research head on one listed business missing from brokers’ annual share market picks for 2021.

Yet the company he was referring to has piled a spectacular 300 per cent on to its share price in the last 10 months.

In fact, this NZX listed company operates in a sector popular with investors, is about to get new management, is New Zealand’s biggest by one measure and is expanding into Australia.

So why did brokers seemingly overlook Summerset Group whose price rocketed from just over $3 last March to more than $12 today?

Instead, they picked the seemingly sure sitters like Fisher & Paykel Healthcare, a2 and Mainfreight.

Greg Smith, Fat Prophets’ research head, acknowledged Summerset was missing from that list. Yet he also acknowledged the massive share price rise and said if you’d had the foresight to put in $10,000 last March, today you could be banking $40,000.

Why so Cinderella?

“Ryman [Healthcare] is the market darling and in the brokers’ picks,” he said referring to a Herald article published on December 27 by Liam Dann. “Ryman is the family favourite. Yeah, I think it has been overlooked,” he said of Summerset.

He expects its share price to keep rising this year, although not perhaps by that 300 per cent mark again.

“There will be scope of further gains due to low interest rates and the property market which can’t keep going to the extent it is but there’s no reason why it can’t remain strong,” Smith said.

Ryman’s share price was still below where it was this time a year ago, he noticed.

“Summerset is ahead by a mile,” Smith said.

Mark Lister of Craigs Investment Partners praised the retirement giant whose chairman, Rob Campbell, leaves in April along with CEO Julian Cook, soon to be replaced by chief financial officer Scott Scoullar.

“We really like Summerset. It is a great business which is executing very well and provides an excellent exposure to the strong housing market. It has also been making some very good progress from a brand perspective,” Lister said.

Summerset almost made it to Craigs’ investment broker picks.

“We definitely wanted one of the companies in this sector in our top five picks, and Ryman and Summerset were both debated. Summerset arguably has more upside in 2021, but we elected to go with Ryman because of its scale, track record, and its growth potential into the Australian market,” Lister said.

However, both companies were well-positioned to have a very good year in 2021, he said.

“Summerset clearly has some strong momentum operationally, and even though it has performed very well in recent months I think it has a bright future over the next two to three years,” he said.

Shane Solly of Harbour Asset Management also expressed confidence in Summerset.

“Harbour has been a substantial security holder- greater than 5 per cent of issued capital for some time – so it’s not a new thing. We bought a lot of stock in April and May last year when investors were wary about the industry. In our view this industry has a lot of structural growth potential,” Solly said.

Scott Scoullar, Summerset deputy chief executive and chief financial officer, today acknowledged the share price rise.

“It was trading at around $3 at the height of the initial global share market reaction but prior to that had been trading at around $9. There appears to be a positive sentiment associated with the company driven by good sales announcements in the last two quarters. Summerset has the largest land bank in New Zealand of the retirement village operators. Our land bank is well diversified across New Zealand, we have a strong development pipeline, and a good past track record of building new villages,” Scoullar said.

Last year, real estate agents and consultants JLL also noted Summerset’s land bank. The company has the biggest development pipeline after buying seven sites in 2019. It plans new 4726 new units, JLL said.

Ryman Healthcare is second busiest planning 2816 units, Arvida Group plans 1484 units, Metlifecare plans 1348 units, Oceania Healthcare 1119 units and Bupa NZ 448 units. Around 70 per cent of Summerset, Ryman and Metlifecare plans are for new villages but 90 per cent of Oceania and Arvida’s plans are to expand existing villages.

Bupa is split more evenly between new villages and expansion of existing villages, JLL found.

Summerset says it has 31 villages completed or under development and a further nine sites here in its land bank plus two sites in Victoria, Australia, bringing the total number of properties to 42.

It now has more than 6000 residents.

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