OCA - Oceania Group - retirement villages

[hardt]

Growth of 40% for FY2018, yeah right, it ain't going to happen.

Will be interesting to see how well they manage capital, they have more than enough facilities to invest in.

Doubt we will see 40% being hit.

[Beagle]

Huge effort required to maintain wages to revenue ratio below the ideal percentile, especially since extra money to pay Nurses and other staff to line up with caregivers increase will squeeze their profits further. Developing their sites will help in the future but not over the next year.

SUM directors under the pump at the annual meeting over wages costs and that's with their VERY modest care to independent living ratio. Doesn't look good for Oceania with their intensive care model. Further, anything they develop in Auckland will have the same cost pressures SUM others are facing.

TJ, I think the market is saying the above issue Couta1 has alluded too is a meaningful headwind for the company that's come about post IPO growth projections.
Shareholders discount this issue as being immaterial at their peril in my opinion. I don't know the company well enough to know where they're going to try and develop new facilities in due course but they're an inexperienced team swimming in choppy waters. Little to no growth in the past. My standard PE for no growth companies is 10 so it would appear to me the stock is about fairly priced, something the market agrees with.

I prefer to back companies with a solid and credible track record of performance. You always pay more for quality but it seldom disappoints.

[hardt]

When you look at Tegal or Feltex, they had a few problems, but mainly: the market they were in had 'questionable' dynamics, and their product was very much the same as other products they were directly competiting against. (I won't bother talking about debt levels, or the fact they were a quick flip PE)

OCA is different.

Their villages are high quality, they have great locations, and the market around them is favorable... yet like ARV, everybody is sceptical if they can make it work. I agree with part of this scepticism, there are somepoints I don't 'like' either.

I am not sure it is good to get harp on about how impossible this 40% growth forecast... because before this growth, they forecast negative growth, for good reasons as well. (I won't bother going into how ARV beat both IPO forecast profit, and had triple digit growth from FY15 to FY16)

OCA are currently trading at just 14.7 Underlying NPAT, with FY18 underlying NPAT of just 9.6... even if they had no growth and missed their forecasts by miles, they are still the cheapest in the sector today, and paying a dividend well above a bank term deposit rate.

F2018 P/E of 8.9-10.7 is purely a forecast - take it with 100 grains of salt.

Trailing P/E of 18.7-22.6 is anything but cheap, it will take a couple of projects to be interrupted or delayed into 2019 to see a guidances change for FY2018.

[trader_jackson]

Further, anything they develop in Auckland will have the same cost pressures SUM others are facing.

The difference is they aren't developing anywhere near as much, nor have anywhere near as much debt to service, nor have anywhere near as much exposure to Auckland.

I suppose at ARV's meeting on 10:30am on Friday 7 July 2017 we will also hear about how bad wage costs will be... will be interesting to see/hear.

[trader_jackson]

I don't know the company well enough to know where they're going to try and develop new facilities in due course but they're an inexperienced team swimming in choppy waters. Little to no growth in the past. My standard PE for no growth companies is 10 so it would appear to me the stock is about fairly priced, something the market agrees with.

I prefer to back companies with a solid and credible track record of performance. You always pay more for quality but it seldom disappoints.

You have a good point there.
What did surprise me, and probably some others, is how this was not a good stag at all... reminds me a bit of ARV (in which case we could see the price dip below IPO for a short period... before a huge rebound)
Hard to say really, but what I do believe is that OCA, along with the rest of the sector, will be interesting to watch.
What is now happening is those who were hoping for a nice stag now want out 'no matter what the price is', so not a huge surprise to see some weakness, which could happen over the next few trading days.

[Beagle]

You have a good point there.
What did surprise me, and probably some others, is how this was not a good stag at all... reminds me a bit of ARV (in which case we could see the price dip below IPO for a short period... before a huge rebound)
Hard to say really, but what I do believe is that OCA, along with the rest of the sector, will be interesting to watch.
What is now happening is those who were hoping for a nice stag now want out 'no matter what the price is', so not a huge surprise to see some weakness, which could happen over the next few trading days.

Agreed, stags taking what they can get and hot money wanting out ASAP. The analogy is possibly a little unfair but this reminds me very much of how Feltex struggled to hold its IPO price on its first day of trading.

[trader_jackson]

Agreed, stags taking what they can get and hot money wanting out ASAP. The analogy is possibly a little unfair but this reminds me very much of how Feltex struggled to hold its IPO price on its first day of trading.

I would say it is, but then again remember ARV finished at the same price as what it listed at, in fact may have dipped to 94, but I can't remember exactly.

At least the hot money will go straight back in SUM now?

[Beagle]

I would say it is, but then again remember ARV finished at the same price as what it listed at, in fact may have dipped to 94, but I can't remember exactly.

At least the hot money will go straight back in SUM now?

It'll find a home somewhere. What did the IPO documents have to say under the risks section about wage costs ? Was this even identified as a material risk ?

[couta1]

A mere 50c increase in wages across the board costs the company around 2million, so think of the extra wage costs when you give all your nurses a $3 -$5 per hour increase, then all your activities staff an extra $3 an hour etc etc. It's quite conceivable that your could be talking an extra 10 million in wage costs.

[peat]

It'll find a home somewhere. What did the IPO documents have to say under the risks section about wage costs ? Was this even identified as a material risk ?

Yes there was a whole section on INCREASES IN COST OF LABOUR RISK
Oceania is of the viewthat there is a reasonable likelihood that wage rates for Healthcare Assistants will increase duringthe Prospective Period.