This from LIVEWIRE 27th June.....................In June last...

This from LIVEWIRE 27th June.....................



In June last year, we wrote that Lifestyle Communities (LIC) was a sound long-term investment. With the stock having returned 16.7% since publishing, Livewire got in touch and asked us to update our thesis. We also discuss another small cap that has a long pipeline of growth opportunities.Lifestyle Communities has a portfolio of over 2,000 homes across thirteen retirement communities. Located in Victoria’s semi-regional areas, LIC is able to keep costs low which assists with retirees’ affordability. The homes themselves are sold, on average, for 60% of the median house price, enabling residents to pocket around 40% of the proceeds from the sale of their houses. Whilst the residents own the home, they rent the land the home has been built on from LIC.The softening housing market has spooked a few investors leading to the share price being unusually volatile over the last six months. We took advantage of this weakness to buy more shares as we recognised that the key trigger for residents to enter LIC’s communities is for improved lifestyle which has very little to do with the maximising of a capital gain they may receive on their principal place of residence.Our enthusiasm towards LIC has not changed. Headed by founder and CEO James Kelly (who owns 14% of the company) the management team continues to execute on their conservative growth strategies. It’s these strategies that have led to 20% profit growth per annum, without the need to raise new capital.So where to from here?Our outlook for LIC is for more of the same. We expect around two new communities to be established each year from which they will sell 300-350 homes. An unintended benefit from drifting property prices is that LIC can secure land banks at prices well below what they have had to pay in recent year. As LIC does not record a development profit from their sales the lower land purchase prices will allow LIC to improve the quality of their product offering and/or lower the price of purchase for retirees.As the population ages and more people enter retirement, demand for communities of the nature that LIC offer will only accelerate. As evidenced by each newly launched community selling out quicker than each before it and the referral rate from existing customers for those entering the communities increasing every year, (now above 50%) the larger problem faced by LIC is to find ways to grow quicker to meet the unmet demand. A quality problem to face for sure and we continue to back management to monitor and manage the risk of any developing growing pains that can occur from growing too fast.LIC remains one of the fund's preferred investment ideas and top holdings.