Global markets experienced their biggest drop in a month overnight, with particularly high levels of volatility being experienced in the Technology sector. Tech stocks, which have led the S&P 500's record run this year, have pulled back recently after some investors questioned the sector's high valuations and moved into more defensive sectors. At the same time Financials held up well as investors rotated into the banks, following positive bank stress results and a move higher in US interest rates.
Closer to home, both the Australian & NZ markets rallied strongly yesterday although we would expect markets to retrace today following global moves.
is generally positive on the retirement village sector given the compelling demographic tailwinds from an aging population, which remains one of our key investment themes. expects to observe a structural pick-up in demand for aged care goods & services as the baby boomers near retirement.
Stock in Focus: Summerset (SUM.NZ)
As we touched on yesterday, retirement village Summerset shares have responded well as the company announced a profit guidance upgrade.
SUM has announced that 2017 underlying earnings may rise as much as 33%, driven by new sales of occupation rights to its units; "We are continuing to see strong development margins from new sales of occupation rights, a key driver of the underlying profit forecast”. Operating earnings are forecast at $72m to $75m in calendar 2017, from $56.6m in 2016. In terms of a net profit forecast, SUM did not provide guidance "due to the inherent uncertainty in fair value movement of investment property, a key component of this profit measure".
The guidance was positive which saw a favourable market reaction. While SUM are experiencing strong sales volumes with good margins, SUM also have a large development pipeline – with a land bank of about 2,609 retirement units and 366 care beds.
We do not currently have a rating on SUM shares. Our top pick in the sector remains Metlifecare, while we believe Ryman Healthcare is overpriced at current levels. Sign up for a FREE trial below to read more about our top stock picks.