Shares of retirement village operator, Gateway Lifestyle Group (ASX: GTY) have plunged more than 13% today after the company released its maiden full year result as a public company.
Although the result was ahead of prospectus forecasts, it appears investors have been left underwhelmed by the company's somewhat subdued outlook for FY17.
Before getting to the outlook, here is a quick overview of Gateway Lifestyle's FY16 results:
- Total revenue of $113.8 million, $3.9 million ahead of prospectus forecasts
- Operating EBITDA of $38.4 million with a margin of 33.7%
- Underlying net profit after tax (NPAT) of $44.8 million, $3.4 million ahead of prospectus forecasts
- Underlying earnings per share (EPS) of 17.12 cents (on a weighted basis)
- Statutory EPS of 14.6 cents
- Final distribution of 5.31 cents per share, taking the full year distribution to 10.88 cents per share
- 5,623 occupied sites at year end, an increase of 1,577 sites over a year earlier
The result was driven largely through the help of acquisitions with Gateway Lifestyle undertaking 17 acquisitions over the course of the year worth $147 million.
These acquisitions helped to boost the number of new home settlements during the period to 262 as well as increasing the company's recurring rental income stream to $41 million, as highlighted by the chart below.
The company currently makes around $100,000 in gross profit for every new home settled, but these sales are typically quite inconsistent and hard to predict. Rental income is much more stable on the other hand, and Gateway Lifestyle has made progress on this front over the year with the addition of 1,577 occupied rental sites and a $3 per week average increase in rental fees.
Outlook
Although the company's FY16 result was fairly positive and broadly in line with market expectations, Gateway Lifestyle is targeting FY17 growth in underlying NPAT of just 5%, excluding further acquisitions.
Not only is this growth figure below market expectations, but it also highlights the point that the company may be too reliant on acquisitions for growth in the short-to-medium term.
Should you buy today?
Investors were clearly anticipating a much higher level of future growth prior to today's result and the share price performance today has correctly reflected investors re-rating the company for lower growth.
The shares now trade on a trailing price-to-earnings ratio of around 14 and while this appears undemanding, I think this is a fair valuation for a company that is expected to grow its earnings by only single digits over the coming 12 months.
