Investors' love affair with retirement village investments has been reinforced with Gateway Lifestyle Group (ASX: GTY) delivering sales and earnings that were ahead of forecast.
The stock rallied 4.5% to $2.32 in lunchtime trade – its highest level since listing in June this year should it close at the current price.
Management turned in a pro forma revenue of $70.3 million for 2014-15 as earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $29 million. The figures beat its prospectus forecasts by $1.6 million and $1.7 million, respectively.
There's more good news. The better-than-expected result was driven by more than one factor and puts the company in a good position to beat its 2015-16 forecasts.
Firstly, the site rates at its manufactured home estates (MHEs) averaged $138 a week, or $2 more than it forecast, while it secured 124 new home settlements compared with expectations of 117.
The gains to EBITDA were further exaggerated by a $5,900 increase in new MHE sale gross margin to $108,400 per home.
Gateway Lifestyle owns the land across its 36 communities and sells manufactured homes to retirees. Retirees rent the site their homes are built on, which can work out cheaper than other options.
The company has also been actively acquiring rivals. It bought Cobb Haven in July this year and management said it is close to securing other deals to expand its footprint.
There are a number of tailwinds supporting the industry too. These include the aging population and the trend towards independent living.
Management is standing by its 2015-16 prospectus forecast for revenue to grow to $110 million and operating EBITDA to hit $46.1 million.
This puts the stock on an undemanding price-earnings multiple of around 14x and yield of about 5.4%. Gateway will not pay a distribution for 2014-15 as outlined in its prospectus.
As I mentioned, its 2015-16 forecast may be too conservative in light of its better-than-expected result. Rents and sales margin are more likely to increase than decrease, and that means the stock could trade on a more attractive valuation than the company's prospectus might imply.
The stock is trading 16% above its initial offer price of $2 a share but it's not the only one in the sector that is doing well.
Aveo Group (ASX: AOG), the renamed FKP Property Group, and Lifestyle Communities Limited (ASX: LIC) are up 28% and 38%, respectively, since January.
