RYM - Ryman Healthcare

[Te Whetu]

You have to be very careful with RYMs equity figure because it is loaded up with asset revaluations. When they changed their accounting from GAAP to IFRS they were forced to book village revaluation gains as profit that ends up as equity on the balance sheet. So ROE is not the right figure to use to understand the economic benefits to shareholders. And it's easy to see right? If their ROE was 14% and their retention rate was 50%, their implied growth rate would be 7% - yet they growth is over 17%. What you have to do is strip out all the revaluation gains from the equity figure, and you are left with all true contributed equity and retained earnings. The return on this figure is 30% if you beginning numbers or 27.5% if you use average of end/start. Which then makes sense as 30% - (1 * 50%) = 15% or approximately RYMs growth rate.

Quite right you are. Really have not been in RYM accounts long enough to pick items like this up...


You also have to be careful with their operating cashflow, as the operating cashflow includes cash from residents which are effectively an interest free loan. The 'cash' left over that could actually be considered 'take home cash for owners' is the 72m reported (and as an aside RYMs depreciation of about 5m is spot with their annual maintenance schedule costs).

Finally, their true cost of capital would be very because their villages are self funding through resident's right-to-occupy fees, which as mentioned are basically an interest free loan to RYM. That said, in my estimates of value for RYM I build in a 10% discount rate, as I feel that is a conservative estimate, and because I feel a rational investor would likely expect a 10% after tax return for the risk of owning RYM.

10% to an equity holder would mean less for WACC. What I've done is treat the fees from occupiers as effectively partly working capital, which is a big positive that needs to be accounted for. Could put this in the WACC or the FCFF... I put it in FCFF and assumed the WACC is just for bank debt and equity holders. In any case this is a far from complete analysis, my question is has any investor done the complete analysis?


Unfotunately I am away until monday night.. If I get time from work today I will post some numbers. I disagree that you need to opt for such precision in your modelling, and I will put forward a simpler (but no less like to be wrong) way to think about their economics, future prospects and value, that I believe is more than sufficient to make an investment case, and will avoid the false precision inherent in DCF valuations (i.e. garbage in = garbage out as Bruce Greenwald would so aptly say). For interests sake I get a current valuation of $2.48 - $2.86. And since my tendency now is to use the more conservative figure I would say RYM is certainly no bargain anymore, but I believe it was an obvious value buy last year when it was trading around $2.

Yep, this is why I have not built a simple DCF, if you build a DCF it needs to be done properly. Rather I've used derivations of the Gordon Growth Model to take a high level veiw on "what would need to be true".

[percy]

Te Whetu,
thank you for your reply.

[Sauce]

Yep, this is why I have not built a simple DCF, if you build a DCF it needs to be done properly. Rather I've used derivations of the Gordon Growth Model to take a high level veiw on "what would need to be true". In any case this is a far from complete analysis, my question is has any investor done the complete analysis?

Thanks for this Te Whetu. Your abilities to do the gymnastics required for a full detailed analysis are beyond my competence I would imagine. When I get time I will post my full (you will probably feel over-simplified) RYM valuation and if you feel inclined I am happy if you take it to shreds ;)

Cheers
Sauce

[Te Whetu]

Why don’t you agree with this WACC at 9.6%? I actually feel it is well overstated as RYM funds itself with the rest coming from debt which is a whole lot cheaper than this. If you were to lower this a tad (but leave it a little high for to add in something to offset risk) it would change your valuations substantially over 21.1 years.

Sorry, didn't mean to imply that I don't believe RYM WACC, just that I don't agree with all WACC in the document.


I think RYM will get pretty close to achieving the 15% FCFF growth needed to justify its current value, and taking into account my comment above 15% would make us undervalued!

15% in one year <> 15% for nine years.


On valuation specifically:
- Yes I have valued RYM, not there exact market value (direct valuation) but have done so on a combination of metrics (mostly comparable types) which give me an indication of RYM’s Earnings value, stability and risk. I usually do this on a 1year forward basis, so for FY12 for RYM. If the numbers look alright, and I know they aren’t going to get worse from here I see this point to do more research on where they could go past FY12. I will continually do this until I feel RYM is overvalued.

A fine approach, be careful what comps you use though (but you've been around here long enough to know that, comments mainly for others).


- I think RYM will always be a touch overvalued (because it’s on the NZX, nature of its shareholders, and its position in the market), and am prepared to take that into account when buying. I asked sauce about it earlier but I think these companies trade on higher multiples than others, so I was asking if there is another way to value such companies. Your post points our direct valuation (the only other way).

Agreed about the NZX generally being overvalued. However this is not always the case.


- Obviously you have a very low risk tolerance, which is 100% fine! Do you not feel safe assuming RYM can grow by say 10% YOY, with anything above 10% being upside or a bonus? Unless you are some kind of genius, I don’t know how one can understand a variety of markets/industries the detail you require, hence must get stuck with a conservative (companies which grow understandably/slowly) and narrow portfolio (as you shy away from so many industries)

I will buy growth if I feel it's undervalued. I have held growth in the past, I currently hold one cyclical stock (NPX.NZ) and one defensive (not saying which as currently accumulating more as I feel it's under-priced). Note I'm not in love with NPX at the moment, but that's mainly managements fault.

You will note I'm not terribly diversified. This means I'll only buy when I am confident of undervaluation... I'd prefer to outperform the market.

Also I can model growth with reasonable accuracy, but it requires much more effort (a lot of research is required of forecast trends, demographics etc). I'll only put in the effort if a high level look says it's worth it.

Cheers
Te Whetu

[Beagle]

Very impressive analysis guys. Since the market is always forward looking and assuming Forbar's forecast is reasonable for 2012 at a further 15% profit growth (which is clearly consistent with management objectives), we should be looking at underlying core profit of $82 million / 500 million shares = E.P.S. 16.4 cents and based on yesterdays closing price of $2.68 cum dividend we get a forward looking 2012 P.E. of 16.11, based on the ex dividend price. They suggest Ryman has traded on an average forward PE of 16.5 times over the last five years so on that basis that suggests a fair price for Ryman is currently approx $2.74 , so no its not a cheap stock where it currently sits, but its highly defensive, has highly predictable growth and is in a needs based industry that has superb demand growth demographics. Also there's an absolute paucity of quality growth stocks out there especially if you're looking for top quality management, low debt and so on.

Taking into account recent and projcted growth this places the company on a Price Earnings to Growth Ratio, (PEG Ratio) of approximatly 1 which suggests to me the company is good value at current prices. I think the market is overlooking the increasing economies of scale that will probably build as Ryman expands over the years. Sure top line sales, underlying expenses and profitability were remarkably all consistent in their expansion rates this year, and I accept its a very labour intensive industry but economies of scale must start to come to fruition over time.

Sauce, yeah, the irony of planning for one's retirement by investing in Ryman isn't lost on me :)
Regards

[Te Whetu]

Thanks for this Te Whetu. Your abilities to do the gymnastics required for a full detailed analysis are beyond my competence I would imagine. When I get time I will post my full (you will probably feel over-simplified) RYM valuation and if you feel inclined I am happy if you take it to shreds ;)

I'm sure it will be fine, all your other posts I've read have been excellent. Also helps that your coming from the point of view that RYM could be appropriately valued at the moment, as opposed to saying that just because they have great management + growth they are therefore under-priced. I suspect some use the second method for determining value.

[buns]

Sorry, didn't mean to imply that I don't believe RYM WACC, just that I don't agree with all WACC in the document.



Please ignore this comment all together, I deleted it from my orginal post as it was wrong.

RYM having low debt, means they are mostly equity funded hence should have a higher than usual WACC (with debt being so cheap right now), even if the equity beta is close to 1.

I'm interested in your thoughts on the PWC report. I also feel it is wrong, and all a tad low as NZ's are scared of investing/don't understand it hence our equity premium should be a lot higher than it is, this is partly offset by our companies being boring/high div paying companies which equates to low risk/low beta's.

Still, companies on the NZX should have high costs of equity as both local and international investors shy away from the NZX.

Thanks for your feedback though - I'm still a bit unsure if my comparables approach I use on small caps really works on mature companies like this. RYM far and away my largest Mark Cap holding

[Sauce]

I'm sure it will be fine, all your other posts I've read have been excellent. Also helps that your coming from the point of view that RYM could be appropriately valued at the moment, as opposed to saying that just because they have great management + growth they are therefore under-priced. I suspect some use the second method for determining value.
Thanks Te Whetu.
P.s. in the meantime, if its of any interest, I have seen three fully blown DCF models for RYM (done by the various analysts) which range from $2.90 - $3.10. So my estimate of value is certainly more conservative than their models..

[Beagle]

Wow, blink and its up to $2.77, should have spent less time posting and more time buying.
Just want another 10,000 for now, I don't suppose anyone would let me have them at yesterday's price :), thought not, lol

[Sauce]

Did anyone else notice this in the Full Year results announcement (in bold):



The underlying profit growth has prompted the directors to lift the annual
dividend by 18% to 7.2 cents per share, with the remaining 50% of the
company's profits being retained for investment in new villages both in New
Zealand and Australia.


I have a strong suspicion we won't be too far away from an announcement that a site has been secured in Australia for RYMs 26th village. Although not necessary for continued compounding wealth generation, Australia will be game changing for RYM if they pull it off.

Cheers
Sauce

[Sauce]

Or should I say "will be game continuing for Ryman" :)

[percy]

Or should I say "will be game continuing for Ryman" :)

No I think you were right first time.Aussie a lot bigger market.

[Sauce]

Thanks Percy.
Putting together my thoughts on RYMANs value now, will post soon.

[Major von Tempsky]

Tell you what maties, the "licence to occupy" concept must be as dead as a dodo from here on in after huge publicity of the plight of the Kate Sheppard residents and other cases where people have wanted to get out and found that they lose several hundred dollars into the pocket of the undeserving retirement village manager.

Not for me and I'm advising all the old people I know to avoid such arrangements like the plague.

[Sauce]

You obviously didn't watch Campbell Live's coverage of that saga. It was the best free publicity RYM could ever have dreamed of. RYM foresaw this issue and altered their contracts several years ago to ensure residents were to be paid out in such circumstances. They were even introduced by John as "we are now going to talk to an ethical retirement operator". They also have been lobbying the industry body to make standardise this. They are as ethically run as you could possibly hope for Major Von Tempsky.

[POSSUM THE CAT]

Sauce Why are others going freehold title then. Stop being so one eyed. Both have traps depending on the contract

[percy]

Sauce Why are others going freehold title then. Stop being so one eyed. Both have traps depending on the contract

I knew the government were keen on the private sector building prisons,so looks as though you may be the first to buy a freehold cell.!!!!! lol.

[Sauce]

Ryman Healthcare Valuation.

Ok, So much for reverse engineering the shareprice to see what growth the market was factoring… Te Whetu beat me to it with a much better and more technical approach than I would be able to do. Anyway I promised to put my Valuation for RYM up..

Warning: There may or may not be some controversial statements for students of applied finance below. And secondly, there is obviously nothing original in these views. It’s simply a combination of the general approach by Graham & Dodd, Warren Buffett, Roger Montgomery and Bruce Greenwald.

Before assessing the validity of my valuation thesis for RYMAN Healthcare please note the following points about the life cycle of a company:

A company cannot maintain compounding growth above GDP forever (unless you believe it can outgrow the economy). Successful companies usually enjoy excessive returns (returns above the cost of capital) for awhile but over longer periods its advantage is eroded away as competitors find ways to chip away at its armour. Eventually returns drop until they approximate the firms cost of capital, or below if they end up at a disadvantage. When this happens, growth adds no value (or can destroy it) – but all the growth up until this point has value.

Alternatively a company can reach a scale that, combined with its other advantages, means it is virtually impossible for the walls to be breached by competitors and it keeps growing until it has saturated its market. In this case, a rational manager will stop retaining profits for growth and will pay out 100% of distributable earnings as dividends, leaving just enough cash to maintain its competitive position and therefore its unit volume. In this case it still makes excessive returns above its cost of capital, but growth no longer makes up part of its value – and could then be then valued much like a perpetual bond.

Note that the key here is sustainability of the competitive advantage NOT growth in the overall market size (although the size of the market matters – but as I have been learning, niche markets can actually have better competitive dynamics than enormous growing markets). It’s really about the inertia that true competitive advantages/barriers to entry/economies-of-scale have on market share.

So with these thoughts in this in mind we come to the value equation.

Firstly we have to look at the Earnings Power Value or the EPV. As outlined by Graham and Dodd a very long time ago.

The formula is: “adjusted earnings x 1 / R”

Where ‘adjusted earnings’ are the ‘owner earnings’ (as defined by Buffett) which simply means the net cash available to an owner after the cost of maintaining the companies competitive position. And where R is the required return (i.e. cost of capital).

This “adjusted earnings” figure can differ from reported earnings, however luckily for us, RYMAN already provide us this figure (even though they are not required to and could just report the considerably higher net profit figure as most companies do). This is the “underlying cash profit” they state i.e. 72m this year.

The formula above is basically just Profit / 10% if you require a 10% return. So a company returning $100,000 in true profit would be worth $1,000,000. Incidentally this is how you would value any perpetual cashflow i.e. a bond, investment property (think cap rate) etc.

The following is another way of expressing the same Earnings Power Value for the purpose of valuation that I think is much more preferable as it better reflects the underlying economics of the earnings machine:

Return on Equity / Cost of Capital * Equity

The profit (‘owner earnings’) generated by the business is ultimately a product of the investment made by the shareholders of the company. This is the equity in the business. So the real return should be a multiple of the equity in the business, as described in the formula above. We can use the forecast RYMAN profits for this year against the current equity invested to check this formula is indeed consistent with Graham & Dodds earnings power value:

Adjusted earnings / 1 – R = EPV

83m / 0.10 = 830m

Is the same as:

(ROE / COC) * E = EPV

(30% / 10%) * 276m = 830m

So, in theory, if RYM was operating in a mature but stable position in its market, and paying out 100% of its owners profits as dividends, it would be worth $830m on this years earnings.

But RYM is not mature. It’s growing, and it retains 50% of its profits to fund that growth. Those profits are reinvested in new villages to create increased future cashflows. This creates an issue for our valuation formula, as we will be receiving less money immediately (bad) for the benefit of receiving more money in the future (good).

To value the growing company that is successfully reinvesting its profits in future excess returns the formula is:

(Return On Equity / Cost of Capital) ^ 1.8 * Equity

What we are doing is taking the real return (i.e. the return discounted for its time value) and firing it out exponentially (to represent the compounding growth). It is basically a ‘straight line’ discounted cash flow. For RYMAN:

(ROE / COC) ^ 1.8 * E

(30%/10%) ^1.8 * $276m = $1,994m

So if RYMAN were reinvesting 100% of its profits at a 30% return, and you believed this was sustainable for a long time, this would be its current value ($1,994m).

Of course we have so far avoided the issue that RYMAN does not retain 100%, it re-invests only 50% in growth. Of course this is easy to sort out. Just value the portion retained for growth and the portion paid as a dividend separately, add the two figures together and you have your intrinsic value estimate.

If we try this for RYM:

EPV = (30% / 10%) * $276m = 830m * payout ratio 50% = $415m

GROWTH = (30%/10%) ^1.8 * $276m = $1,994m * retained ratio 50% = $997m

EPV + GROWTH VALUE = $1,412m

(DIVIDED BY 500,000,000 SHARES ON ISSUE)

ESTIMATE OF INTRINSIC VALUE: $2.82 per share

My Maths is terrible and this simple stuff is as far as I go, I believe the algebra is:

VALUE = (ROE/COC) * E * D% + (ROE/COC) ^1.8 x E * (1-D%)

Where:
ROE = Return on Shareholders Equity
COC = Cost of Capital or Required Return
E = Shareholders Equity
D = Dividend Payout Ratio

However, the compounding growth portion of this this formula is reliant on the on the 30% Return on Equity being sustainable for 11.9 years (in this case). Alternatively, a combination of slightly lower returns (but still in excess of the cost of capital) with longer timeframes would work so its as good an estimate as you need if you have the life cycle of a company as described above in mind. And for those who I haven’t bored to death and are still reading all this diatribe, here in lies the point, I believe, of both Te Whetu and myself: You have to understand the business.

You can run a few reality checks; You need to know that you Return on Equity figure is realistic, and for some businesses it can be helpful to look at the ROE for the previous ten years, and perhaps use an average; especially for cyclical businesses that might be at the top or bottom of their cycle. One very important thing to do is look at the implied growth rate assumption which is the formula Te Whetu mentioned: Return on Equity * Retention Rate. For RYM this is: 30% * 50% = 15% This allows us a reality check i.e. is 15% growth sustainable for 12 years? Or, as Te Whetu brilliantly put it, “can RYMAN be 8 times the size in 15 years…” which is the same thing said another way but is perhaps a better way to look at it.

Where we differ (I think? sorry Te Whetu, correct me if I am wrong) is how you handicap the odds. I do not believe you need to do detailed financial modeling to give you an edge, in fact I believe it can lead to hubris. Otherwise the world would be full of super rich accountants and mathematicians. I believe that it is the competitive dynamics of the industry that will ultimately determine the stability of Excess Returns. Competitive advantage and barriers to entry provides a natural inertia that pulls market share towards it.

Percy understands this perfectly. In pointing to my post #459 and the discussion of RYMs competitive advantage he was, more succinctly than me as usual, making exactly my point.

What are the odds that outsized returns are sustainable? Understanding the competitive mold of the industry, and how a business fits within that mold, is very subjective and also one of the hardest things to truly have insights into – most people could learn valuation theory, but learning to understand subjective competitive dynamics is not so easy. This is literally Warren Buffetts competitive advantage. Of course he has a lifetime of fanatical research of businesses competitive dynamics and a rational genius intellect – almost impossible to replicate.

Students of valuation and finance learn invaluable skills and I am sure that I would be a better investor if I understood more of the theory & mathematics behind detailed financial modeling. However, it’s equally important to recognise that empowering someone with the tools to generate precise models is dangerous – as humans we are apt to search for a hard number to a soft problem by creating complex models. The more complex the model, and the longer the time spent determining the inputs, the more we tend to trust the output as if it was fact.

In summary:

Precise cash flow forecasts are dangerous, can lead to overconfidence, and are more likely to be wrong than be right. Detailed models are therefore unnecessary to make profitable investments. No one can accurately model Rymans cashflows out for the next 20 years or even for the next 10 years. Not even Rymans management could do it (and be right). As investors, we should be assessing the underlying economics of the business, then assessing how sustainable those economics are - i.e. looking for a MOAT. The way to know how sustainable returns are is by understanding the competitive dynamics of industry and the business within it, not by modeling the industry growth rate vs possible company growth rate to try and predict the likely cashflow at year 13 etc. This doesn’t mean we should not learn to value a business – indeed understanding the true underlying economics of a business and being able to hang a value on the cashflow and future growth is essential. And I think checking your assumptions against the size of the potential market is important. And finally, growth should only be valued and paid for when you feel the assumptions are almost certain and/or, a very large discount to that value exits, so that if your assumptions miss the mark you do not lose money.

PE ratios are not a valuation.

For those that believe Charlie & Warren engage in detailed financial modeling: Some comments from Warren Buffett & Charles Munger:

Charlie: “We are very inexact… How certain we are is the most important part. We never sit down, run the numbers out and discount them back to net present value”

Warren: “We believe if you can pinpoint it, your kidding yourself”

Charlie: “Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, your not going to make much different than a 6% return – even if you originally bought it at a huge discount. Conversely, if a business earns 18% on capital over 20 – 30 years, even if you pay and expensive looking price, you’ll end up with a fine result”

And this lecture by Alice Schroeder:

http://www.youtube.com/watch?v=PnTm2F6kiRQ

Alice was given unfettered access to all his files and notes on every Berkshire and partnership investment and spent 2000 hours with Buffett when writing his biography. She does not believe buffet performs any forecasting or DCF valuation at all when making investment decisions, contrary to what most people think, and provides an interesting example in this seminar.

By posting these quotes I am not advocating buying companies at an expensive price. In fact if you read back earlier in the thread, I valued RYM at $2.67 back when it was trading around $2 and I believed a margin of safety existed – I put my money where my mouth is and it has been a wonderful investment so far returning me 39%, including dividends, in less than 8 months.

With Regards,

Sauce

[buns]

Might take me the weekend to digest this one.

In advance, great work and many thanks.

[troyvdh]

...WOW...Sauce...very very impressive...the "thing" about RYM is that on the face of it ...is well ,its the perfect investment.
But that in itself is a worry...which I believe you have very well articulated spelt out.
To my mind there have been perfect stories...Microsoft,Apple,BHp...where mkt dominance has reigned....in NZ ....we tend to have bursts....BIL,RJI...TEL....then pooph.....

...could RYM be the exception.....our little "Microsoft"...they are off to OZ....a graveyard mostly for NZ companies , but not for NZ indviduals....

...say in 10 years ...could RYM have 10000000 shares ..having had multiple 1 for 5 issues and each share worth what they are now...and all current holders all very happy self satisfied chappies congratulating ourselves that were indeed very wise indeed in believeing .... the odd hiccup of course (sorry...I meant buying opportunities...like a 20 months ago when RYM were just above a dollar......)....

again a very good read....with a brain like your I really hope your really rich..and enjoying it to....

troy

[Beagle]

Crikey Sauce that'll take a while to digest, excuse the pun :)

I've been meaning to spend some time this week suring up my thesis that the EPS released by Ryman, i.e. just over 20 cents per share is the correct figure upon which to base one's assessment of earnings but havn't got the time at the minute so let me just put this out there and get some feedback.

My contention is that Ryman's underlying profit, i.e the $72M reported understates their real earnings. The correct figure is the $100m inclusive of unrealised valuation gains. Before you all jump on me and suggest this is ludicrous, let me explain.
We know under IFRS that all property companies are required to revalue their investments each year and include that valuation movement in the financial result and we know how bizarre that's been for some of the real estate investment trusts but my contention is Ryman is a special case in that's its business model involves the certain churn of properties approx every six to seven years so the gains, (which are shown as unrealised becuase they are re-selling a licence to occupy, not the units themselves) are an inextricable part of their business operation, therefore such gains are in fact normal income due to the highly predictable nature of the churn rate.

Now before you take sidesi know this, even the broker's analysts can't agree on this, I've seen one analysts report showing a forward PE of 12 and another over 16 depending on which side of the fence you sit.

My contention is that if the normal churn is factored into earnings (which it should be because its inextricably tied into their business model), i.e. the $100m figure approx 20 cents per share and assumming 15% growth this year = 23 CPS earnings the 12 month forward PE of Ryman is only 11.7 at the current share price of $2.70. Given growth of 15% this puts their price earnings to growth ratio (PEG) at 0.78 which makes Ryman a very cheap growth stock.

So if we assume inflation for the forseeable future is about 3%, which seems to be the general consensus, Ryman revaluing their entire portfolio by about that amount each year based on the units going up by that and churning every seven years for a realised gain of about 21% every seven years or so, all makes good common sense to me.

Is there something I'm missing, as always, I welcome a good debate.
Disclosure, recently bought a lot more Ryman.

[Sauce]

...WOW...Sauce...very very impressive...the "thing" about RYM is that on the face of it ...is well ,its the perfect investment.
But that in itself is a worry...which I believe you have very well articulated spelt out.
To my mind there have been perfect stories...Microsoft,Apple,BHp...where mkt dominance has reigned....in NZ ....we tend to have bursts....BIL,RJI...TEL....then pooph.....

...could RYM be the exception.....our little "Microsoft"...they are off to OZ....a graveyard mostly for NZ companies , but not for NZ indviduals....

I agree Troyvdh. It is best to ignore Australia until they are making money over there... They don't need Australia to continue on their growth path for a very long time. But conversely, it could be a game changer if it works out, just best to wait and see before factoring it in.


...say in 10 years ...could RYM have 10000000 shares ..having had multiple 1 for 5 issues and each share worth what they are now...and all current holders all very happy self satisfied chappies congratulating ourselves that were indeed very wise indeed in believeing .... the odd hiccup of course (sorry...I meant buying opportunities...like a 20 months ago when RYM were just above a dollar......)....

Odds are in favour of it. And yep, bound to be the a few periods of opportunity along the way! I will be waiting patiently for those :)

[Sauce]

My contention is that Ryman's underlying profit, i.e the $72M reported understates their real earnings. The correct figure is the $100m inclusive of unrealised valuation gains. Before you all jump on me and suggest this is ludicrous, let me explain.
We know under IFRS that all property companies are required to revalue their investments each year and include that valuation movement in the financial result and we know how bizarre that's been for some of the real estate investment trusts but my contention is Ryman is a special case in that's its business model involves the certain churn of properties approx every six to seven years so the gains, (which are shown as unrealised becuase they are re-selling a licence to occupy, not the units themselves) are an inextricable part of their business operation, therefore such gains are in fact normal income due to the highly predictable nature of the churn rate.



Hi Roger, thanks for your post, great to get another angle on their value.

Some readers might remember the discussion about this on the 'owner earnings' thread. I found this confusing when first researching RYM. I think they really could tidy their reporting up a bit so this is more obvious.

But basically its easy to get confused as to what the "unrealised" gains are. It seems intuitive to think they would be the increase in the value of each unit i.e. an increase in the value of the 'license to occupy'. And that they book the unrealised portion to their book of "future resale gains." In which case you would be absolutely correct Roger.

However this is not actually the case. The valuations are literally for the entire portfolio of villages, valued as a going concern. I.e. if they were to sell off one of the villages to another retirement village operator for instance. This is totally different to the capital gain they get when they resell a unit which is actually reselling the "right to occupy".

Since RYMAN are never going to sell their villages, there is simply no tangible benefit to shareholders from a cashflow perspective, so it doesn't really come into the way we assess the value. However, it DOES provide us with an idea of the underlying ASSET value. Which is useful in knowing that the cashflows are backed by very valuable FIXED ASSETS, so from a safety of principal perspective, RYMAN is not just going to evaporate like businesses built on a ton of intangible assets.

So its a good thing, but not really relevant to earnings valuation. This is why the company states very clearly "Our underlying cash profits are what investors should focus on and what you should judge us on"

Regards,

Sauce

[percy]

Ryman Healthcare Valuation.



ESTIMATE OF INTRINSIC VALUE: $2.82 per share



By posting these quotes I am not advocating buying companies at an expensive price. In fact if you read back earlier in the thread, I valued RYM at $2.67 back when it was trading around $2 and I believed a margin of safety existed – I put my money where my mouth is and it has been a wonderful investment so far returning me 39% in less than 12 months including dividends.

With Regards,

Sauce

At the time you researched and came up with your valuation of $2.67 "THE MARKET" with every bit of information available,valued RYM at around $2.00.
On charts it did not look too flash.
Your have proved that knowing the "true" value of a company,saves losses, and makes for very profitable returns.It has been fun,of interest,and profitable for all us to follow your posts.It also gives us the knowledge of what the "true" value of RYM in case "THE MARKET", with momentum decides to over pay.
Thank you.

[Sauce]

At the time you researched and came up with your valuation of $2.67 "THE MARKET" with every bit of information available,valued RYM at around $2.00.
On charts it did not look too flash.
Your have proved that knowing the "true" value of a company,saves losses, and makes for very profitable returns.It has been fun,of interest,and profitable for all us to follow your posts.It also gives us the knowledge of what the "true" value of RYM in case "THE MARKET", with momentum decides to over pay.
Thank you.

Hi Percy,

Thanks - I suspect i don't deserve such kind words - I am writing things down here as I learn.. so please treat my views with utmost suspicion !! .

With the share price somewhere in the region of the companies intrinsic worth, share price appreciation should (in theory) slow down to approximate the current rate of growth. Although as you say it might overshoot. And then intrinsic value could receive a boost from Australia in a few years time. I see some analysts are picking another build rate increase from 2016 - I am guessing they are factoring in the first stages of a parallel roll out in Australia around that time - I am speculating as I can't remember the rationale off the top of my head.

And don't forget what needs to pan out in the future is pretty substantial for my approximation of their value to hold.. In the end it's all a big guess, which is why its so important to focus on the MOAT and keep the crystal ball gazing to a minimum (apart from all important reality checks).

Remind me of another Munger Quote - when asked what made him one of the worlds most successful investors he replied "Because my guesses are better than yours"

To give you an idea of how sensitive this valuation model is, if you use the average of the shareholders equity at the start of the financial year, and the shareholders equity at the end of the year - which for RYM is about 27.5% - instead of the 30% ROE calculated on beginning equity, you end up with a valuation of about $2.48 per share. Some would say this is more appropriate figure to use as the end of year profit is a product of cash re-invested throughout the year as well.

In other words.. (note to self... !) "if you can pinpoint it you are kidding yourself" :)

Regards,

Sauce

[percy]

I just loved the Munger quote.Do not know what it has to do with what we are talking about, but my favourite quote at present is from Benjamin Disraeli "What we anticipate seldom occurs;what we least expected generally happens."

[Sauce]

I just loved the Munger quote.Do not know what it has to do with what we are talking about, but my favourite quote at present is from Benjamin Disraeli "What we anticipate seldom occurs;what we least expected generally happens."

Ouch Percy! Lol, if I was superstitious I might be unhappy you posted that quote during this discussion! haha ;-)

[Sauce]

Actually, percy, I think your quote has perfect relevance to my latest dribble (post) !

The best summary I can think of my view of complex financial modelling is this:

People spend all this time trying to anticipate the effect - i.e. modelling growth in cashflows based on things like industry growth, inflation etc

And not enough time trying to understand the cause - i.e. the true reasons why a company makes high returns in the first place (competitive advantage/barriers to entry)

Once you understand the true cause of the outsized returns of a successful company, you make a rational and informed guess as to its sustainability. I.e. you can handicap the odds.

This approach provides a higher probability that what you anticipate will occur, and what you least expect wont.

For those focused upon forecasting, I believe, your quote aptly applies.

How does that sound Percy?

With regards,

Sauce

[percy]

Actually, percy, I think your quote has perfect relevance to my latest dribble (post) !

The best summary I can think of my view of complex financial modelling is this:

People spend all this time trying to anticipate the effect - i.e. modelling growth in cashflows based on things like industry growth

And not enough time trying to understand the cause - i.e. the true reasons why a company makes high returns in the first place (competitive advantage/barriers to entry)

Once you understand the true cause of the outsized returns of a successful company, you make a rational and informed guess as to its sustainability. I.e. you can handicap the odds.

This approach provides a higher probability that what you anticipate will occur, and what you least expect wont.

For those focused upon forecasting, I believe, your quote aptly applies.

How does that sound Percy?

With regards,

Sauce

Exactly. the cause, Ratios are figures.We project the numbers,but we seldom look at what the business does to produce those figures.Two companies in the same sector can be totally different.I think of the fish and chip shop I go to.Why do I drive past 3 or 4 other fish and chip shops? The cause, is because I like their's best. I notice that other people do the same.

[Beagle]

Thanks for bursting my bubble on the revaluations gently Sauce. You're a gentleman :)

Not sure what else I can constructivly add to the Ryman discussion at this point other than all the elderly folk I've met at Ryman's facilities when I've visited my Dad there seem very content and I've always believed that word of mouth recommendations are always the best form of advertising. The market seems to have found its own level around $2.70 for now after quite a stellar performance in recent months, I suspect we'll settle down to 15-17% gains per annum from here and I will be happy with that. Brokers seem to have seetled in to around $3 for their DCF valuations which seems about right to me.

My best guess is that the market is somewhat underestimating the long term demand for the secure and comprehensive retirement solution Ryman's offer, its a pretty compelling solution for those who want peace of mind and the highest standards of care. It will be very interesting if they can crack the Australian market, at this stage I'd say the current share price has nothing factored into it for possible Australian Growth, which is of course correct until they can prove otherwise...but here's the thing, I think they'll do exactly that so I'm happy to be in for the long term.

Regards

[POSSUM THE CAT]

Roger would those people you talk to admit they had made a mistake they could not get out of?

[Beagle]

The people I've met there seem happy they're being looked after, they know its not a good investment but they're buying into a lifestyle of security and quality care, most couldn't give a toss about the exit fee they just want to be well cared for, have top quality facilities and live in a safe caring community of like minded people. The very comprehensive nature of the facilities, activity programmes, trips and so on appear to be what people want when they hit 78 or 79 which as I'm sure you know is the average age of entry to Ryman.

There appears to be a very good vibe at Ryman, the staff I have met are all good and they are looking after my Dad well in the new dementia ward at Evelyn Page. I'm as happy as a son can be in the circumstances.
Regards

[Sauce]

The people I've met there seem happy they're being looked after, they know its not a good investment but they're buying into a lifestyle of security and quality care, most couldn't give a toss about the exit fee they just want to be well cared for, have top quality facilities and live in a safe caring community of like minded people. The very comprehensive nature of the facilities, activity programmes, trips and so on appear to be what people want when they hit 78 or 79 which as I'm sure you know is the average age of entry to Ryman.

There appears to be a very good vibe at Ryman, the staff I have met are all good and they are looking after my Dad well in the new dementia ward at Evelyn Page. I'm as happy as a son can be in the circumstances.
Regards

Roger,

I am very pleased to hear your dad is with the compassionate team at RYM. I have had a lot to do with my local Ryman Village as well, and I know how caring and compassionate the team there are. And also how ethical the leadership is, which trickles down, and how they stomp on anything super quickly that doesn't fit within their expected conduct. Ryman are playing a very important role in peoples quality of life and at a stage in life we will all have to deal with eventually.

The last time I visited a Ryman Village, the sales manager took me up to their bar (it was happy hour!), and I saw an old client of mine who is in an independent unit with his wife, and his exact words were "We feel like we are on holiday every day here..."

It's a great business from the customers perspective and from the shareholders perspective. And those two things are always mutually inclusive.

All the best to you and your dad Roger.

Regards,

Sauce

[Sauce]

Thanks for bursting my bubble on the revaluations gently Sauce. You're a gentleman :)

Well this confused the hell out of me for ages, as you can see if you read back through the 'owner earnings' thread - just about everyone thought that was the case, so I know exactly how you came to that conclusion. They really should make it a bit clearer in my opinion.
Cheers
Sauce

[winner69]

I just loved the Munger quote.Do not know what it has to do with what we are talking about, but my favourite quote at present is from Benjamin Disraeli "What we anticipate seldom occurs;what we least expected generally happens."

Came across this quote today -

Hindsight is not only clearer than perception-in-the-moment but also unfair to those who actually lived through the moment.” – Edwin S. Shneidman, Autopsy Of A Suicidal Mind

[percy]

Came across this quote today -

Hindsight is not only clearer than perception-in-the-moment but also unfair to those who actually lived through the moment.” – Edwin S. Shneidman, Autopsy Of A Suicidal Mind

Cracker.So very true.

[Lizard]

Came across this quote today -

Hindsight is not only clearer than perception-in-the-moment but also unfair to those who actually lived through the moment.” – Edwin S. Shneidman, Autopsy Of A Suicidal Mind

I was concerned as to why you might be reading "Autopsy of a Suicidal Mind"....

... until now when I opened up the latest John Mauldin newsletter! :D

[winner69]

I was concerned as to why you might be reading "Autopsy of a Suicidal Mind"....

... until now when I opened up the latest John Mauldin newsletter! :D

and what Mauldin says about Europe and the rest of trhe world is almost suicide material eh ..... one one who is usually a glass half full man he has been pretty glum the last few weeks .... might have to give him a miss for a while and find somebody who thinks the world is in a growth cycle and deleveraging is all over and it is all blue sky from here

[Lizard]

and what Mauldin says about Europe and the rest of trhe world is almost suicide material eh .....

Yes, my thoughts exactly after reading it. Am sitting here pondering... maybe we should read Roubini who supposedly has a plan? That's a turnabout - reading Roubini for something positive!!!

[Beagle]

Thanks for those kind words Sauce.

Regarding the forthcoming Australian plans I know we can count on the Ryamn team to tread carefully and minimise the risk, one development at a time and make sure each one is beeded down and operationally profitable before moving on to the next one.

I think there's a very high probability of sucess over there and whilst the market is sceptical due to a long litany of failures by other N.Z. companies expanding over there and is according Ryman no current price premium for the opportunity, (of course we all remember Air New Zealand and the Warehouse's failures to name just two), I firmly believe Ryman's quality will be well received by our Trans-Tasman neighbours.

Regarding other comments, in my opinion we are in an age of deleveraging and I'm sure that will continue for the forseeable future, (try selling coastal holiday property almost anywhere in the country its been that way since the onset of the GFC and isn't getting any better), hardly anyone is looking to expand their balance sheeet and take on lifestyle assets but Ryman is a needs based business and in many cases actually plays into the deleveraging process. Live in a big mansion $1m plus, or downsize to a quality $450K independent living townhouse at Ryman with lots of community programmes to enjoy ? There's also the undeniable attraction of your weekly fees being locked in and never increasing whilst people's superannuation is adjusted for the CPI every year, tanslating to a gradual rise in disposable income, so I'm sure the various happy hours at Ryman's facilites get a thorough work-out :)

[percy]

$6 dollars a day for someone to knock on your door or phone you up? ... Hmmm ... $illy me for think such a $imple human kindness would cost $42 a week.

http://www.stuff.co.nz/national/5144873/12-days-dead-and-no-one-noticed

I would have thought the neighbours would have been more allert.

[777]

At $6 I would doubt many would take up the offer. It's like banks wanting $15 from you when you deposit an overseas cheque. Total ripoff.

Actually maybe a an opening here for someone to offer a check up service from home. 100 people at $1 a day would give you $700 a week for about 1 to 1.5 hrs a day on the phone.

[Beagle]

^^^ Common guys, we all know the oldies can prattle on for what can sometimes seem like forever when you're talking too them. I am sure the average phone call lasts a lot longer than many on here might imagine. If you want to call 100 retired folk a day @ $1 pop knock yourself out and good luck running a viable business on those terms. They're running a business, what part of independant living do people have trouble understanding ? Ryman have a very wide range of assisted living options available, unlike the majority of other retirement villages. Perhaps the said gentleman could have made more of an effort to get to know his neighbours ?

The only purpose of that questionable peice of journalism is to highlight the virtues of very elderly people in having some support network, paid or otherwise, that the gentleman in question chose not too is of course his perogative.

[percy]

^^^ Common guys, we all know the oldies can prattle on for what can sometimes seem like forever when you're talking too them. I am sure the average phone call lasts a lot longer than many on here might imagine. If you want to call 100 retired folk a day @ $1 pop knock yourself out and good luck running a viable business on those terms. They're running a business, what part of independant living do people have trouble understanding ? Ryman have a very wide range of assisted living options available, unlike the majority of other retirement villages. Perhaps the said gentleman could have made more of an effort to get to know his neighbours ?

The only purpose of that questionable peice of journalism is to highlight the virtues of very elderly people in having some support network, paid or otherwise, that the gentleman in question chose not too is of course his perogative.

Exactly. Thanks for putting into words what I think.

[Beagle]

You're welcome Percy. I'm sure there's something of more business interest that's worth discussing, for instance will the latest earthquakes have a material effect on Ryman's Christchurch operations ?

Crikey, it just goes on and on doesn't it... I am sure we are all feeling really sorry for you folk down there. It must be just awful.

[percy]

You're welcome Percy. I'm sure there's something of more business interest that's worth discussing, for instance will the latest earthquakes have a material effect on Ryman's Christchurch operations ?

Crikey, it just goes on and on doesn't it... I am sure we are all feeling really sorry for you folk down there. It must be just awful.

Yes it will Roger.
Drive up further demand.Like you people want somewhere safe for their parents.
With the quakes,you just try and get on with life.For the people in eastern suburbs it is awful/terrible.

[buns]

You from down there Percy? Hope all is well.

Does Ryman have buildings in the effected areas?

[percy]

You from down there Percy? Hope all is well.

Does Ryman have buildings in the effected areas?

All well ? think so,thanks for asking.
I have just rung Gordon CFO at RYM. "All residents and staff safe.All villages undamaged.Work at new village in Shirley progressing."

[Beagle]

All well ? think so,thanks for asking.
I have just rung Gordon CFO at RYM. "All residents and staff safe.All villages undamaged.Work at new village in Shirley progressing."

Good work Percy. Thanks for taking the time to do that although it hasn't helped the share price much today. Might have been more helpful for the company to issue a news item to that effect to the market don't you think ?

[percy]

Good work Percy. Thanks for takking the time to do that although it hasn't helped the share price much today. Might have been more helpful for the company to issue a news item to that effect to the market don't you think ?

Yes I think RYM should have updated the market.I was going to reply to buns that I thought things would be Ok.They I thought only take a minute to ring and post an informative post.What is interesting is that RYM said 1st, residents safe.I suppose that sums it up.
SP. Maybe people thought there was damage? Must admit I thought it was because you had finished filling up the truck. !!!! lol.

[Beagle]

Yes I think RYM should have updated the market.I was going to reply to buns that I thought things would be Ok.They I thought only take a minute to ring and post an informative post.What is interesting is that RYM said 1st, residents safe.I suppose that sums it up.
SP. Maybe people thought there was damage? Must admit I thought it was because you had finished filling up the truck. !!!! lol.

LOL, No mate i'm keeping plenty of cash in reserve watching this European debt crisis unfold. Plenty of powder to deploy in due course.

[mamos]

New Zealand's retirement industry has been urged to consider a new way of caring for the aged involving ''apartments for life'' where cure and care is provided when needed rather than them having to progressively shift home as they grow older.

The care philosophy comes from the Humanitas Foundation and was pioneered in the Netherlands by Dr Hans Becker, who shared his experience with more than 60 retirement village operators at yesterday's Ageing Asia conference in Auckland.
Under the Humanitas approach, ''cure and care'' rather than people are portable. The philosophy allows elderly people to have an apartment that may be government-subsidised, rented or bought in a ''somewhat self-contained'' retirement village. The villages have open to the public add-ons to the traditional care services, such as a restaurant, cinema and open spaces, and where residents comprise a mix of those needing medical care and those that don't.

New Zealand Retirement Villages Association CEO John Collyns said this contrasts to New Zealand's traditional retirement concept of ''multiple physical moves', typically from a retirement village to a rest home and then on to a dementia and/or hospital unit as a person ages.
''It's telling people that they can live and grow old in one place and should they need cure and care in their elder years, those will come to them,'' Collyns said.
Oceania Group CEO Geoff Hipkins said the New Zealand industry had already embraced some aspects of the philosophy but still grappled with more of an ''audit-type culture''.
Oceania's Green Gable facility in Nelson began piloting aspects of the Humanitas programme early last year and will also use the concept in its new Mt Eden facility. It plans to build 30 independent living units and 70 assisted living suites at the new Auckland facility in August this year.
''We'd introduce a restaurant-type concept which is literally open not only to our residents and their families but to the general public. It will involve our residents in say, food preparation and provisioning. We see that as a huge gap in care as far as the elderly is concerned,'' Hipkins said.

While the Humanitas business model may daunt some, he said, 100 per cent occupancy, increased use of volunteers and brand positioning ''will contribute to a positive bottom line''.
Geoff Tylee-Porter, CEO at The McLean Institute, said its Holly Lea facility in Christchurch is running ''like Humanitas in terms of the thinking'' except for the business model which is that of a charitable institution.

But the institute also had an ''ageing in one place'' concept operating at its boutique retirement village, he said.

[percy]

mamos.
I am not sure how different this approach is to the RYM model.RYM do encourage people to become involved in RYM village before they move in,so they already have friends their,and know their way around the village.You start off in a independent unit,and move into the home ,or were ever you needs require,still in the same village. So I do not see the upheaval is great.The way I see it is RYM village is your home for life.You will never have to move out.

[Beagle]

Sounds highly theoretical, of dubious benifet to residents and I believe that business model would be very inefficient. Any efficiencies bought about by volunteer input are highly theoretical, at best.
I'm very happy with Ryman's business model and the care they provide to their residents which Percy has commented are residents for life and can choose their level of care and assistance all within the one resort style village as their needs change. What's not to like ?

On the other hand if you look at quite a number of Metlifecare retirement villages, well, all they offer is independant living and some assisted living facilities from memory, but if you need rest home, hospital or Dementia care you have to move out and suffer your 30% loss retention on the value of the unit (when they eventually get around to selling it AND while they continue to clip the ticket for your weekly fees even when you're not there).

Perhaps the presenter at that conference hadn't been to see one of Ryman's world class retirement facilities ?

I'm very happy with Ryman's operations both from a Parent care and investment perspective. Can't see the point in changing a winning formula.

[mamos]

I agree. This is what RYM are already offering, whereas some of the other operators are not.

[winner69]

Shareholder Alex Gray wrote a letter to the editor of the Dom Post - emblazoned across the page "Ryman shareholder angry and asheamed at rest home death"

Basically angry and ashamed that the company took no responsibility for its taking 12 days to find a body. He did say Ryman states on its website 'the company is 'passionate about delivering great service' but in this case he thinks they failed miserably ... and that hiding behind the excuse the poor bugger wanted to be independent is unacceptable

Anyway one incensed shareholders view .... Challies got his letter published as well giving the corporate view to balance it all up

Wonder if Mr Gray has sold his shares?

[percy]

Shareholder Alex Gray wrote a letter to the editor of the Dom Post - emblazoned across the page "Ryman shareholder angry and asheamed at rest home death"

Basically angry and ashamed that the company took no responsibility for its taking 12 days to find a body. He did say Ryman states on its website 'the company is 'passionate about delivering great service' but in this case he thinks they failed miserably ... and that hiding behind the excuse the poor bugger wanted to be independent is unacceptable

Anyway one incensed shareholders view .... Challies got his letter published as well giving the corporate view to balance it all up

Wonder if Mr Gray has sold his shares?

I can not see where Alex Gray is coming from.The death occured in a independent unit,which is the same as a ownership flat.As I said in post 551 on this thread I would have thought his neighbours would have been more alert.Independent units are independent. From my Chambers School Dictionary;Independent; not relying on someone else for support,guidance etc,free to think or act for yourself.
May pay Mr.Gray to seek independent advice before deciding to hang on to, or sell his shares.

[Under Surveillance]

Wonder if Mr Gray has sold his shares?

Nah, ... he's bewildered, not quite on top of things, fodder for an offer from Bernard Whimp.

[Beagle]

One of the key reasons my parents moved into a retirement village was so they could enjoy a caring community of like minded people in similar circumstances to themselves. If the Gentleman in question especially chose an independant apartment / unit, chose not to receive any "just checking on your welfare" calls from Ryman made no effort to get to know his neighbours, then one would assume he had some other support network, kids, friends ? Where were they ?

Mr Gray is a bewildered shareholder pointing the finger at the wrong party. Ryman is not even partially culpable. The gentleman only has himself and his chosen support network and perhaps his neighbours to some extent to blame.
Classic sad case of an old eccentric musician taking too much solace in his music and not making enough effort with people ?

[buns]

5100 poor buggers have lost their homes.

These guys are now cashed up and need a new home.. Ha, Or will we see some ‘Darryl Kerrigan’s’ (from one of the all time greats ‘The Castle’) have a go? http://daledugahole.com/

Surely some of this must be going Ryman's way? Is there much free capacity in Ryman’s South Island units? Will RYM push some sort of advertisement programme towards these people, and look into creating a new programme which helps these people set up a new life.

Then there is the other side of it. Will we see RYM buy land aggressively in Christchurch following this clean up/clear out? This could really push management’s measure, with the temptation to start borrowing.

Interesting times - overall I think this is net upside to RYM holders, but hard to get excited about when you think about where it is coming from.

[troyvdh]

...your right these are interesting times....

....i would personally find it utterly fascinating...if any one or institution ....can/would ...predict/plan frankly anything ..and i mean "anything"....within any such time frame between now and whenever...

...is my point clear....if not ...sorry....

[percy]

RYM have already stated they are fast tracking the new Shirley village.No damage and on track.We have tried without success to get the mother in law into a home for respite. Every one full.I expect all retirement villages have experience extra demand.The extra demand may well extend way beyond ChCh.I think most posters would be worried if they had a parent living in ChCh and it will speed up a lot of people's decision to move into a village.People who accept the government's payout offer may decide to move to Tauranga,or say Orewa,rather than stay in CHCH.They will be cashed up and rather buy another house,may well decide to bring forward their purchase of a retirement unit. I would think the whole retirement village industry will benefit.

[percy]

ChCH Press today.
Mairehau retirement village to be devloped sooner than planned.
A $100 million retirement village project will be fast-tracked because of increased demand after the ChCh earthquakes.The complex will house about 450 residents and employ more than 100 staff."the vast demand existed before the earthquakes,but now that's increased again".Construction of the village is expected to be completed within two years.It will be named Lady Diana Isaac.
Mairehau is the Shirley village referred to in previous posts.Some people call it Mairehau others Shirley.You could say Mairehau, Shirley .

[Beagle]

Perhaps Ryman should build another couple of villages in Auckland ? They've only got 3 here serving the needs of 1.5 millions residents ? Where is Mairehau, please excuse my ignorance.

[percy]

Perhaps Ryman should build another couple of villages in Auckland ? They've only got 3 here serving the needs of 1.5 millions residents ? Where is Mairehau, please excuse my ignorance.
Yes, certainly a lot of room in Aucland area for Ryman to grow.
Mairehau is between St.Albans and Shirley.Go to Google maps,enter Mairehau,Canterbury.

[Beagle]

Yes, certainly a lot of room in Aucland area for Ryman to grow.
Mairehau is between St.Albans and Shirley.Go to Google maps,enter Mairehau,Canterbury.

Thanks Percy. I must confess i'm having a little bit of trouble getting my head around them building another facility in Chch for two reasons.
1. Geographically they allready have a disproportionate weighting towards Chch by a considerable margin, six facilities there with the population base of Chch, v for example only 3 in Auckland, go figure ?, so why would they add to that position ?

2. I see Fletcher Challange this morning coming out and saying that rebuilding is effectivly "on hold" until the shaking stops.
This seems like a pragmatic decision to me, yet Ryman are fast tracking another retirement facility ?
Like the company a lot but scratching my head to understand the commercial prudence of this, thoughts anyone ??

[CAM]

maybe...
redzone payouts about $300k. New property developments are in the $400k plus area.
Older people with redzone payouts will struggle to get a mortgage to buy a new place (need another 100k)
...may just look at going straight to a retirement village and don't want to move away from family to the North Island.
Ryman can probably sell the lot off the plans...if they havn't done already.
Covered by insurance if there is another quake
I don't see a lot of real commercial risk

[macduffy]

On the whereabouts of Mairehau, it took reference to the earthquake zones maps this week to find out that a relative who's lived in Weston Road - East end - for the last 20 or so years, doesn't in fact live in St Albans!

Ryman is a Christchurch domiciled company so we'd expect them to have a bias towards that city, but like Roger, I'd prefer that they concentrate on the northern/western suburbs. More expensive land of course.

[percy]

Hi Roger and Macduffy. ChCh suburbs keep changing names.Merivale was once about a square mile,now takes
in many square miles.!!I blame Harcourts real estate salesmen.!!! Yes would be nice if new villages were in Auckland.However,it says a lot for RYM that demand is so good in ChCh they have can build yet another in the quaky city.Just think how many they will be able to buid in Auckland.Do not even start to project the villages in Melbourne.!!
Some parts of ChCh it would be foolish to be rebuilding at present,while other parts are safe to.This area is safe.

[Beagle]

Hi Roger and Macduffy. ChCh suburbs keep changing names.Merivale was once about a square mile,now takes
in many square miles.!!I blame Harcourts real estate salesmen.!!! Yes would be nice if new villages were in Auckland.However,it says a lot for RYM that demand is so good in ChCh they have can build yet another in the quaky city.Just think how many they will be able to buid in Auckland.Do not even start to project the villages in Melbourne.!!
Some parts of ChCh it would be foolish to be rebuilding at present,while other parts are safe to.This area is safe.

LOL Thanks for that. Seems to me if there's scope for 7 retirement villages in Chch with the population there, how much scope is there in Auck, Wellington, Hamilton and Tauranga ?? Huge, and that's before we even start talking about Australia.

Wonder about them paying dividends at all when there's so many growth opportunities and dividends are subject to 33% with-holding tax and carry no imputation credits. I suppose some people like them.

[percy]

LOL Thanks for that. Seems to me if there's scope for 7 retirement villages in Chch with the population there, how much scope is there in Auck, Wellington, Hamilton and Tauranga ?? Huge, and that's before we even start talking about Australia.

Wonder about them paying dividends at all when there's so many growth opportunities and dividends are subject to 33% with-holding tax and carry no imputation credits. I suppose some people like them.

Yes, they certainly make their retained earnings work.!!! May be a good discipline to pay a divie.NZders do expect companies to pay a divie.May not attract sharehoders if they did not.ie I don't know.!!!

[Beagle]

So we are half way through the first half. Anyone heard any wispers regarding how Ryman are getting on with their sales and or progress in Australia ?
On an unrelated matter, notice how all the Amercian companies report quarterly...makes you wonder in this day and age of computerised accounting systems why N.Z. Companies can't follow suit ?

[macduffy]

I'm not sure that we really want quarterly reporting though. There's an argument that the US system causes undue emphasis on managing for short term results, perhaps to the detriment of medium and longterm planning.

Current requirements to keep the market informed of sensitive info should be sufficient, IMO.

[Pumice]

I'm not sure that we really want quarterly reporting though. There's an argument that the US system causes undue emphasis on managing for short term results, perhaps to the detriment of medium and longterm planning.

Current requirements to keep the market informed of sensitive info should be sufficient, IMO.

A fair chunk of Ryman is owned by Taunui and Ngai Tahi isnt it? and have been for awhile, so i doubt they are concerned with quarterly reporting.
Given that Ryman consumers are mostly/entirely grey haired old white folk, I am sure they are loving this investment.

[arcticblue]

Anyone able to expand on the price drop and the number of shares sold today?

[nosolution]

No idea... but could be a good opportunity to top up?

[winner69]

No idea... but could be a good opportunity to top up?

Maybe Tainui - they held exactly 22,500,000 - the exact number sold in one parcel today

If so transfer between tribal accounts or is there a new investor

Wasn't me who bought this lot

[Scotty020]

think its due to Tainui selling their 4.5% stake:

http://www.stuff.co.nz/business/industries/5278435/Tainui-sells-Ryman-stake-to-cut-debt

[winner69]

and the other tribe didn't buy either

[CJ]

NOt great that a major holding sold out but I dont see any real reason for the drop in price and would expect it to bounce up in a couple of days when people forget why it dropped in the first place.

[minimoke]

and the other tribe didn't buy eitherOwning rest homes isn't in the best interests of their constituents since most don't live long enough to enjoy such facilities. Obviously much better better to invest in a shopping centre

[darksentinel]

Owning rest homes isn't in the best interests of their constituents since most don't live long enough to enjoy such facilities. Obviously much better better to invest in a shopping centre

I'd make a comment about investing in RBD, but I think I will leave it at that.

[Snoopy]

think its due to Tainui selling their 4.5% stake:


I thought is was Sauce, selling his massive holding to the Turks so he could join Phaedrus cruising the rivers of Europe!

SNOOPY

[Beagle]

Question is, who bought that stake ? Was it a single new major investor or placed at a discount through one of the large brokerages to selected clients who are now abritraging their opportunity. The market is telling us its the latter.

[Sauce]

I thought is was Sauce, selling his massive holding to the Turks so he could join Phaedrus cruising the rivers of Europe!

SNOOPY

Unfortunately the Turks didn't like the terms of my RYM proposal. Looks like I might have just missed Big P in France anyway as we just left there. What a wonderful place, its just a bit of a shame about the french.

They say Paris is the best place in the world for people watching (hence all the outside chairs at their Cafe's face the footpath like its a theater). Personally I am not convinced. Watching Parisians made me feel poor and poorly dressed.

Regards,

Sauce

[percy]

.

They say Paris is the best place in the world for people watching (hence all the outside chairs at their Cafe's face the footpath like its a theater).


A very true statement.The young ladies are delightful.!!

[Omega]

Question is, who bought that stake ? Was it a single new major investor or placed at a discount through one of the large brokerages to selected clients who are now abritraging their opportunity. The market is telling us its the latter.

Craigs hit the phones after the market closed yesterday - took the opportunity to top up my holding.

[Beagle]

Some happy Craig's clients then. Maybe its time for me to switch brokers ? Forsyth Barr are .... I'd better not say it.
The rest of us who want to top up have to pay more :-(

[Joshuatree]

$2.58 was the price. Institutions got the bulk and us lucky Craigs clients the rest.:)

[forest]

$2.58 was the price. Institutions got the bulk and us lucky Craigs clients the rest.

Question for Joshuatree, If you get the opportunity to participate in those placement, what sort of brokerage would you expext to pay and are there any other cost.
I only have used internet brokers and therefore get left out of placements.

Thanks, Forest

[Joshuatree]

Yeah pros and cons Forest. I like the fact they do alot of my paperwork for me amongst other things like this placement. Last good placement was APA on ASX at re A$2.85 (reA$@.85). I paid brokerage of 1% plus $7.50 trade charge on RYM SPP. Sometimes i demand less brokerage on big deals and get it. They have diff levels too. Im what you call an Habitual Investor. Sophisticated Inv get offered the best deals but you have to have a few mill or so to get that, not sure re details there. cheers.

[forest]

Thanks Joshuatree for the info, forest

[Hoop]

Craigs hit the phones after the market closed yesterday - took the opportunity to top up my holding.


Some happy Craig's clients then. Maybe its time for me to switch brokers ? Forsyth Barr are .... I'd better not say it.
The rest of us who want to top up have to pay more :-(


$2.58 was the price. Institutions got the bulk and us lucky Craigs clients the rest.:)
Now is the time for the "lucky" few to be careful.

After a long uptrend 28 months that included a technical weakness starting mid June 2010 lasting 4 months, we are experiencing another weakness now. The primary uptrend survived the June-October 2010 technical weakness which had better fundamentals than now. This latest weakness could just be another breather in RYM bull cycle....atm it is too early to tell. To be careful the new entrants should have stop/loss point in place.

Not to offend anyone....when smart money exits dumb money fills the void.

I personally find this period of weakness when most of the technical indicators fire sell signals a time not to buy..granted everyone has a different trading methods.

The chart below shows the gap up and gap down area...imagine Tainui selling exactly at that point spooky ..huh? Drawing S&R lines through gaps makes those lines very powerful therefore that 2.70 resistance level is very powerful (note 2.70 S&R line is undistinguishable on a line chart). Trading above 2.70 would therefore be a vote of confidence. A drop below 2.62 would confirm a downtrend.
http://www.imageurlhost.com/images/bas4jjtat7vm9www0mf.png

[percy]

Hoop,
thank you for your chart and sage advice.

[CJ]

Hoop - how do you factor in large sales like this into TA. Do you try to confirm whether it is just short term weakness as the overhang slowly works its way through or is that ignored in TA?

Also - how do you define smart money. I assume the funds that bought of Tainui would also be considered 'smart money'

[Hoop]

Hoop - how do you factor in large sales like this into TA. Do you try to confirm whether it is just short term weakness as the overhang slowly works its way through or is that ignored in TA?
Also - how do you define smart money. I assume the funds that bought of Tainui would also be considered 'smart money'

how do you factor in large sales like this into TA CJ a good question . Lets go extreme with unusual events. An argument popped up when the flash crash occurred over a computer "fat finger" glitch ..do you factor in these events?? some TA experts said yes some said no.....in hindsight when the markets fell and retested this so-called flash crash support points it was found to be valid support points.....so personally I would say that nothing should be ignored. TA after all is objective analysis of the "now" and is recorded to provide that history.

TA objectivity shows a big player (Tainui) sold out at a price below the market price causing the OBV to drop..The OBV fall is recorded as a chart event ...that is all!!.

The OBV indicator can display some behaviour of which way a share price may go..however it is only one indicator ...as history has it RYM's OBV has a very long term divergence with its share price...therefore the smart money exits may seem to be not that smart in hindsight. With this type of history I would not get too hung up about this sudden drop...but remember it was Phaedrus's favourite indicator...so OBV should be treated with respect and drops should be treated with caution.

Do you try to confirm whether it is just short term weakness as the overhang slowly works its way through or is that ignored in TA? All emotion assumptions (subjective) should be ignored in analysing TA. TA will tell you objectively with time if this overhang is working its way out of the market and if this is a short term weakness. TA will confirm one way or the other with time.

how do you define smart money. I assume the funds that bought of Tainui would also be considered 'smart money' The presumption is that big players move markets there is another assumption that Mr Market knows more than you. When Mr Market shows a sudden OBV drop it is telling you a big player has cash up at a price less than the market price for some reason and there are not enough investors to buy that holding at market price. Mr Market objectively reasons this as a negative therefore traders nicknamed it as smart money.
investors that bought up Tainui holdings use dumb money.....don't get emotional over this smart/dumb terminolgy...It is a type of Yin Yang effect ... like an equation.. one side balancing the other side.

[Sauce]

Hoop - how do you factor in large sales like this into TA. Do you try to confirm whether it is just short term weakness as the overhang slowly works its way through or is that ignored in TA?

Also - how do you define smart money. I assume the funds that bought of Tainui would also be considered 'smart money'

CJ you read my mind. I would to hear your thoughts on this also Hoop. I have no undestanding of TA so please excuse my ignorance. I noticed the RYM chart looked suspiciously like it was forming the 'double top' I have seen Phaedrus and others refer to as bearish many times.

Fundamentally, RYM healthcare is looking better than ever (Albeit coming off a larger base so future returns will be lower than last decade unless Australia is as successful as NZ - but dominant advantages are much more entrenched - hence they have never been in a stronger position).

So it will be fascinating to see how things pan out over the next year or two then.

Regards,

Sauce

[Sauce]

Woops didn't realise you had replied already.
Cheers
Sauce

[Sauce]

I have to say it all sounds horribly risky to me Hoop. But I have no practical knowledge of TA.

The 'business' risk with RYM at this current point in time is so low, if you get stopped out of RYM based on Mr Market's reaction to short term price and volume changes (isn't TA at least somewhat self fulfilling if a lot of market participants are using it to make decisions?), could you not easily end up on the wrong side of the trade as the underlying business value keeps increasing and the share price catches up?

Thanks in advance for your thoughts.

[winner69]

Good discussion

I remember the same sort of discussiona few years when AMP sold out of RBD at 60 cents odd that sent the OBV spiking down ..... now that was dumb money getting out eh

[percy]

Often when a major shareholder sells down the share price will drift for a few months until those shares find a "good" home.Then if the fundamentals are good the SP will go higher.Offcourse if there is something "naughty" the SP will never recover.
Over the years we have seen a number of "smart money" sell out of RYM.
The " smartest money" was ofcourse John Ryder , cofounder of RYM, who sold to "dumb money" at approx 50cents [adj] a number of years ago.Price today is 5 times that,so one up for us "dumb money" punters.!!!!

[jmsnz]

Remember also, that the 'smart money' has identified an alternative investment opportunity that may or not be available to the 'dumb money'. Their motivation for selling out may simply be that they can get a better return somewhere other than holding a whole bunch of Ryman shares.

Discl: Happy Ryman holder

[Hoop]

Yeah...there's been a lot of successful dumb money RYM investors ...lets hope it carries on.

RYM has an unusual OBV / price divergence if I can beleive the data on these free charts....unusual to the fact that it has lasted during the entire length of the bull market to date.

When certain TA indicators misbehave I normally use others instead...no one should rely on a single indicator RYM proves this..eh.


I have to say it all sounds horribly risky to me Hoop. But I have no practical knowledge of TA.

The 'business' risk with RYM at this current point in time is so low, if you get stopped out of RYM based on Mr Market's reaction to short term price and volume changes (isn't TA at least somewhat self fulfilling if a lot of market participants are using it to make decisions?), could you not easily end up on the wrong side of the trade as the underlying business value keeps increasing and the share price catches up?

Thanks in advance for your thoughts.

Sauce..TA and self fulfilling prophesies...yep, your definitely not alone in thinking this way :)...I was a long term investor using FA for 25 years and I still remember those FA/TA prophesy debates well... After having one debate too many I ended up joining the TA brigade ..if you can beat them join them.
After using TA with some FA for 10 years I now do not believe in self fulfilling prophesies anymore.

Risky business using TA on a low risk business like Ryman....Nah..Using TA as a timing tool is less risk... TA gets you in and out of the market more effectively than using emotion......Low risk investments still have their ups and downs and usually with low reward.
RYM a low risk ...hmmm ...the market didn't think so during the height of the GFC of 2007/2009. when the shareprice dropped 50% to $1.20.

Note on the NZSX50 index thread... Phaedrus MSI on the NZX50 has fallen so all stops should be strictly adhered to (thanks Trackers for carrying this on)

[Sauce]

Risky business using TA on a low risk business like Ryman....Nah..Using TA as a timing tool is less risk... TA gets you in and out of the market more effectively than using emotion......Low risk investments still have their ups and downs and usually with low reward.
RYM a low risk ...hmmm ...the market didn't think so during the height of the GFC of 2007/2009. when the shareprice dropped 50% to $1.20.


Thanks Hoop.

I'm not sure that answers my question as to how you can use these TA indicators to exit RYM (i.e. from now going forward, not backwards at historical information) and then not risk ending up on the wrong side of the trade. Perhaps you could give us a live example with RYM from now and show us how to outperform holding it?

Please remember I am just thinking about this for the first time so I don't want to sound like I'm up for a fight just genuinely interested. I have no doubt that many people make a living trading using TA - in fact I'm convinced they do - but I suspect it's much like playing internet poker. You have to have an edge on the competition and you have to beat the house rake just to break even.

I.e. Its a zero sum game right? At least to actually beat the return offered by simply holding a quality business, by trading in and out of it. As your extra profits come from someone else receiving less profit. i.e. the winners make money off the losers. So you must be better than the average trader (quicker, faster, smarter ?). And of course it's worse than that because everyone has to beat their transaction costs just to get back to the return offered by doing nothing (the non-zero-sum returns generated by the underlying business).

Internet poker is much the same and some people are very good at this. Some people have gotten very rich playing internet poker - As I am sure have many traders using TA. In fact I suspect there are possibly more books & seminars on getting an edge in poker than there are about TA. However I suspect the lowest risk, highest return, and in my opinion the smartest, players in the game are the House in both cases - i.e. the brokers and the poker websites.

I am guessing here but this reasoning seems logical to me - i.e. that your swimming against a pretty strong tide, but one that's not impossible to make headway if you learn to be in the strongest group of swimmers.

And now that I think about it that's not to mention the time and effort to learn, watch, track, chart. Potential tax consequences etc etc. I certainly don't think it will ever be for me - with or without your 35 years experience Hoop!

I hope you don't mind my thinking aloud here with some contrary arguments.

Cheers

Sauce

[Voltaire]

I.e. Its a zero sum game right? At least to actually beat the return offered by simply holding a quality business, by trading in and out of it. As your extra profits come from someone else receiving less profit. i.e. the winners make money off the losers. So you must be better than the average trader (quicker, faster, smarter ?). And of course it's worse than that because everyone has to beat their transaction costs just to get back to the return offered by doing nothing (the non-zero-sum returns generated by the underlying business).

Sauce, I'm not an active trader, so I'll leave a full response to those that are, but a couple of things struck me about your comment above:

Firstly, and for the sake of illustration, if a sp is in an uptrend there aren't necessarily any losers over that period (people that sold too early, sure, but that's a different thing)

Secondly, a successful trader doesn't need to be better than the average trader - just better than the average (buy and hold) investor. This has been highlighted particularly strongly over the past few turbulent years where traders have been able to surf multiple rises and falls (and profit from each leg) while investors have watched the value of their investments bounce up and down. Volatility creates worry for investors but is the life-blood of traders. Personally, I think this is one of the reasons that many investors avoid the share market: they feel, rightly, that it is no place for those who don't have the time, inclination or skill to constantly monitor the market and that it is really the (dangerous) playground of the active trader.

[Beagle]

Interesting discussion. FWIW I use a combination of TA and FA. I see the 100 day moving average is currently sitting at $2.57, if there was a proven break below that line I'd be concerned. The apparent inability to break $2.80 on the upside doesn't concern me, its only a matter of time, lets remember this stock was $2.00 one year ago !! At this stage I'd say the market just needs time to digest this placement. The company is clearly performing well and still growing strongly and has done so throughout the GFC. I'm happy to hold.

[Sauce]

Firstly, and for the sake of illustration, if a sp is in an uptrend there aren't necessarily any losers over that period (people that sold too early, sure, but that's a different thing)

Hi Voltaire

I appreciate your thoughts. I am not convinced though. I didn't say owning shares was a zero sum game. I said "to beat the return offered by simply holding a quality business, by trading in and out of it" was a zero sum game. I.e. All aggregate profits that are greater than those connected to the underlying value generated by the business come from the aggregate losses of other market participants. That must be a mathematical certainty?

In other words: if good active trading investors like hoop and Phaedrus made an additional 5% compounded annually than the return to owners who simply held RYM over the last 12 years, by trading in and out of it, where did that 5% come from? It can't come from value created by the underlying business or everyone would be the beneficiaries. The only place I can see where it could come from is from a transfer of value from the market participants on the wrong side of the trade. I.e. losing traders, those selling or buying too high or low due to emotion or need, or losing positions bought for insurance/hedging.

Individually, if some traders make oodles, other traders must lose money (relative to underlying economic returns). But the overall winner in terms of the total aggregate effect on wealth of all market participants is the brokers.


Secondly, a successful trader doesn't need to be better than the average trader - just better than the average (buy and hold) investor. .Since the results of someone who buys and holds RYM will simply reflect the economic returns of the business over time, for an active trade to do better they have to make a higher return than the underlying business economics. Therefore those returns must come from the aggregate losses of other traders. I think you are referring to value that could be transferred by an emotional investor panicking and dumping shares too cheaply but that by definition is not a buy and hold i.e. that is active. The whole point of fundamental analysis is to ignore price fluctuations and focus on the business economics.


This has been highlighted particularly strongly over the past few turbulent years where traders have been able to surf multiple rises and falls (and profit from each leg) while investors have watched the value of their investments bounce up and down. Volatility creates worry for investors but is the life-blood of traders. Personally, I think this is one of the reasons that many investors avoid the share market: they feel, rightly, that it is no place for those who don't have the time, inclination or skill to constantly monitor the market and that it is really the (dangerous) playground of the active traderI totally agree that volatility causes many people to make bad decisions. It appears that humans, on average, are not built with the appropriate instincts for modern markets! And your conclusion seems sound in my limited knowledge, except I would add that the playground may not be quite as profitable a place as people think. And also, as volatility is the life-blood of the active trader, true economic growth is the life blood of the investor.

I think Hoop makes an excellent point that an active trading strategy is better than making buying or sell decisions on emotion (while temperament of emotional control would surely be a pre-requisite for success of any trading strategy I guess having a plan would help many people). My guess is that if you have a good brain and are dedicated, you can consistently gain an edge on average traders/investors with a disciplined strategy. A bit like the financial equivalent of being a pick pocket, trying to pinch value from those less skilled, less intelligent or less able to control their emotions :) (That's an attempt at tongue in cheek cynicism; pure value investing using FA has similar elements of wealth transfer of course).


I appreciate the thought provoking discussion Voltaire

Regards,

Sauce

[Voltaire]

Hi Sauce, apologies for the late reply - I wanted to make sure I had time to reply in kind to your well argued post.


Hi Voltaire

I appreciate your thoughts. I am not convinced though. I didn't say owning shares was a zero sum game. I said "to beat the return offered by simply holding a quality business, by trading in and out of it" was a zero sum game. I.e. All aggregate profits that are greater than those connected to the underlying value generated by the business come from the aggregate losses of other market participants. That must be a mathematical certainty?

Yes, there's no real argument here. I understood your assertion re the zero-sum game (and by and large I agree with it) - I was challenging your assumption that successful traders need to be better than the average trader. My point was that many successful traders make their profits at the expense of poor frightened stuck-in-the-headlights investors who often enter/close positions at extremely sub-opportune times. Active traders, even those who don't participate in shorting, face many more opportunities for profit than those who trade less frequently (though, granted, they also incur more costs in brokerage and potentially tax). This, the relative willingness to trade frequently and to act quickly on buy/sell signals, is the nub of the issue - the question of at what point on the continuum one demarcates "traders" from "investors" is necessarily arbitrary (and thus of little interest - at least to me).


In other words: if good active trading investors like hoop and Phaedrus made an additional 5% compounded annually than the return to owners who simply held RYM over the last 12 years, by trading in and out of it, where did that 5% come from? It can't come from value created by the underlying business or everyone would be the beneficiaries. The only place I can see where it could come from is from a transfer of value from the market participants on the wrong side of the trade. I.e. losing traders, those selling or buying too high or low due to emotion or need, or losing positions bought for insurance/hedging.

Agreed (and as above), though I'm confident that in the stocks they are active in Hoop and Phaedrus would make well beyond a 5% margin p.a. on buy & hold investors.


Individually, if some traders make oodles, other traders must lose money (relative to underlying economic returns). But the overall winner in terms of the total aggregate effect on wealth of all market participants is the brokers.

No argument about the brokers being onto a good thing - no such thing as a losing trade for them! - but again I point you to the fact that in a long-term uptrend (any uptrend in fact) there may not be "real" losers. It is theoretically possible for every participant to have made money on their transactions - not as much as they might have made had they timed perfectly their entry and exit at the beginning and end of the uptrend, but a profit nonetheless.


Since the results of someone who buys and holds RYM will simply reflect the economic returns of the business over time, for an active trade to do better they have to make a higher return than the underlying business economics. Therefore those returns must come from the aggregate losses of other traders. I think you are referring to value that could be transferred by an emotional investor panicking and dumping shares too cheaply but that by definition is not a buy and hold i.e. that is active. The whole point of fundamental analysis is to ignore price fluctuations and focus on the business economics.

There's an old argument here about whether the "underlying business economics" are usefully measured by any metrics other than the share price. I'll avoid that argument but I think the evidence is that many buy & hold investors do exit positions on the basis of fear. You want to argue that that is contrary to the doctrine of the noble flag they have signed up for. Perhaps, but it might well be rational behaviour nevertheless (I'm not going to hang around to argue the wisdom of mass hysteria if the hysterical crowd is heading in our direction!)


I totally agree that volatility causes many people to make bad decisions. It appears that humans, on average, are not built with the appropriate instincts for modern markets! And your conclusion seems sound in my limited knowledge, except I would add that the playground may not be quite as profitable a place as people think. And also, as volatility is the life-blood of the active trader, true economic growth is the life blood of the investor.

I think Hoop makes an excellent point that an active trading strategy is better than making buying or sell decisions on emotion (while temperament of emotional control would surely be a pre-requisite for success of any trading strategy I guess having a plan would help many people). My guess is that if you have a good brain and are dedicated, you can consistently gain an edge on average traders/investors with a disciplined strategy. A bit like the financial equivalent of being a pick pocket, trying to pinch value from those less skilled, less intelligent or less able to control their emotions :) (That's an attempt at tongue in cheek cynicism; pure value investing using FA has similar elements of wealth transfer of course).


I appreciate the thought provoking discussion Voltaire

Regards,

Sauce

Likewise, I've enjoyed the exchange. I wish Phaedrus was still with us - I'm sure his contribution would add a great deal. A last point - you talk a lot of managing the emotions as being critical to success. I think at least as much comes down to time and inclination - many people fall victim to risk/loss on the sharemarket because they simply aren't able to monitor the markets in real-time. It's not that they lack the requisite strength of character it's just that they're too busy doing actual useful stuff in the real world to be able to respond in a timely fashion to opportunity and risk.

[Sauce]

Yes, there's no real argument here. I understood your assertion re the zero-sum game (and by and large I agree with it) - I was challenging your assumption that successful traders need to be better than the average trader. My point was that many successful traders make their profits at the expense of poor frightened stuck-in-the-headlights investors who often enter/close positions at extremely sub-opportune times.Over the life of any business the total returns available to investors in aggregate is no more or less than the sum of the economic value that was created or destroyed by it during in its lifetime. Traders try to beat that economic return by stealing economic worth off those on the other side of the trade, whichever strategy they are employing. It seems we agree upon this.

However..

It reads as if you are implying that short term traders are more often taking economic value from unsophisticated longer term holders, that's a mathematical impossibility because short term traders implicitly make up more of the volume they trade against. Remember the only way to look at it rationally and objectively is to consider the system in aggregate - not your perception of possible individual situations. Longer term holders will, ON AVERAGE, see returns closer to the economic returns of the business. Shorter term holders will, ON AVERAGE, make returns related more closely to their ability to pinch value from other market participants. And the losers (economically speaking) will include proportionately more shorter term holders than longer term holders. That is a mathematical certainty. And as you wisely point out, it is meaningless to attempt to define the intangible boundary between long and and short term - its a general overview.

But don't take me wrong here, I am not necessarily advocating that this is a reason not to trade ! To the contrary, clearly people can make it work, and if it works then stick to it. But I believe it's an important point to understand.

I try to buy businesses when I believe the economic value is much greater than the share price reflects, and being successful at this has not dissimilar implications. For instance It also relies on the same human blunder within the system to serve up the opportunities. The value is stolen from those less sophisticated also. Although it's generally a wealth transfer from the impatient to the patient, it's all part of the same game. I lay no stake to superiority. It also needs a serious amount of time and learning and a certain emotional temperament to do successfully.


Agreed (and as above), though I'm confident that in the stocks they are active in Hoop and Phaedrus would make well beyond a 5% margin p.a. on buy & hold investors.Well I think that's the wrong discussion to get into (Their returns are intangible to us and the variables make it meaningless anyway). But there are some interesting mathematical implications that would occur if a good trader could consistently beat all his brokerage and tax AND the economic return of quality businesses such as RYM healthcare (which was my original reference to the 5%) by a margin as high as 5%.

I believe that if we were to look at the track records of lots of successful investors (all flavours; traders, long term etc) over an entire lifetime (it's the only total aggregate returns of all their investing that counts) the compounding growth rate will usually be a lot lower than what we (and often they!) think - even if they are very wealthy. It doesn't take much out performance to compound to some ridiculous numbers over time. So it is logical that it would take a very successful trader indeed to have a positive 'expected value', relative to business returns, of 5% after costs, when you sum all their trades in aggregate over a long period of time.

Obviously if you look at a bunch of individual trades there will be times when the underlying economics is outperformed many times over. But that's as useful as trying to distinguish a line between long and short term traders.


Active traders, even those who don't participate in shorting, face many more opportunities for profit than those who trade less frequently (though, granted, they also incur more costs in brokerage and potentially tax). Yes. They face many more opportunities for profit AND LOSS - and they have to beat the costs just to break even. If you agree it's a zero sum game (before costs), then you agree that in aggregate they face equal chance of an economic loss or gain. It's only more skill or an informational advantage that changes an individual's odds to give a positive expectation.


No argument about the brokers being onto a good thing - no such thing as a losing trade for them! - but again I point you to the fact that in a long-term uptrend (any uptrend in fact) there may not be "real" losers. It is theoretically possible for every participant to have made money on their transactions - not as much as they might have made had they timed perfectly their entry and exit at the beginning and end of the uptrend, but a profit nonetheless.Yes. It's simply the transfer of economic value I am talking about. That's a very real loss or gain. And the reality is there will be plenty of players who experience real monetary loss in the same manner and plenty that benefit from that.


There's an old argument here about whether the "underlying business economics" are usefully measured by any metrics other than the share price. I'll avoid that argument but I think the evidence is that many buy & hold investors do exit positions on the basis of fear. You want to argue that that is contrary to the doctrine of the noble flag they have signed up for. Perhaps, but it might well be rational behaviour nevertheless (I'm not going to hang around to argue the wisdom of mass hysteria if the hysterical crowd is heading in our direction!)Personally speaking, my best financial decisions have been doing exactly the opposite of the hysterical crowd. While it's no walk in the park, quantifying value and price disparity is, at the least, equally as possible as becoming a winning trader of trends.

However.. Overall, and in aggregate, owning businesses for the long term will always be a positive sum game, but generating bonus returns above that, by trading short term trends, will always be a negative sum game. (negative rather than zero due to brokerage & tax). That's different from saying it's impossible to trade profitably or to buy undervalued companies, which it is clearly not.



A last point - you talk a lot of managing the emotions as being critical to success. I think at least as much comes down to time and inclination - many people fall victim to risk/loss on the sharemarket because they simply aren't able to monitor the markets in real-time. It's not that they lack the requisite strength of character it's just that they're too busy doing actual useful stuff in the real world to be able to respond in a timely fashion to opportunity and risk.This is a great point. Direct investment in the sharemarket, of any kind, is not for everyone that's for sure. A fanatical obsession is, in my opinion, critical.

Thanks again Voltaire. Your debating skills are well honed.

Sauce

[percy]

Roger, they listened to you.Howick for a new village.
Went to the very well attended AGM this afternoon at Ngiao Marsh Village.All well,everyone happy,onward and upward.
What I found nice to hear from the chairman;"my mother is a resident here, and it is with a sense of pride,I enjoy coming here."

[Sauce]

Roger, they listened to you.Howick for a new village.
Went to the very well attended AGM this afternoon at Ngiao Marsh Village.All well,everyone happy,onward and upward.
What I found nice to hear from the chairman;"my mother is a resident here, and it is with a sense of pride,I enjoy coming here."

Thanks for the insights Percy, wish I could have made it down there.
Good to see they 'eat their own cooking' as such :)

Any whispers or hints as to progress finding Aus site?

Cheers Percy

Sauce

[percy]

Thanks for the insights Percy, wish I could have made it down there.
Good to see they 'eat their own cooking' as such :)

Any whispers or hints as to progress finding Aus site?

Cheers Percy

Sauce

Yes,
very much Melbourne/Victoria.They hope to make announcement within a year.Warren Bell who is realitively new to the board,spoke of his involvement with Halinsteins/glasson who have a large foot-print in Victoria and NSW.He pointed out labour costs,overhead costs were a lot higher in Aussie.Unions were harder [my words] .He pointed out the size of Aussie market.RYM appear to have considered their "model" very carefully.
I only just arrived in time for the meeting,was way down the back,with a very noisy bar fridge making hearing Simon Challies clearly very difficult ,so missed a lot of the finner points.I have heard Challies clearly at another meeting,so was dissappointing to miss the meat.With so many people there I did not wait round to speak to any-one.The chairman spoke well.

[Beagle]

Roger, they listened to you.Howick for a new village.
Went to the very well attended AGM this afternoon at Ngiao Marsh Village.All well,everyone happy,onward and upward.
What I found nice to hear from the chairman;"my mother is a resident here, and it is with a sense of pride,I enjoy coming here."

Good stuff. Thanks for your feedback from the AGM, like others I wish I had time to get down there. I am hoping to attend the Shareholders presentation being run next week by Gordon Macleod CFO at the Edmund Hillary Retirement village. Would be a good chance to meet him and for one bean counter to pick anothers brains and get a better understanding of the operations. Toured through that village before, is a real classy facility. Anyone else planning to attend ?

[Joshuatree]

My broker sometime ago told me margins and profits are much lower in Aus. NZ is where the cream will always be. Good to see their methodical approach in Aus.

[Beagle]

Geez is the market a tough place to be or what. Ryman down to $2.50 today when the market finally went up. They've confirmed at the AGM current trading is up on last year and the previous comparable period was a top result so go figure today's SP performance ?

[percy]

Roger,
Did you get to the presentation?

[Snoopy]

Geez is the market a tough place to be or what. Ryman down to $2.50 today when the market finally went up. They've confirmed at the AGM current trading is up on last year and the previous comparable period was a top result so go figure today's SP performance ?

Maybe some retirement sector investors are freeing up funds to invest in the upcoming Summerset Group float?

SNOOPY

[percy]

Maybe some retirement sector investors are freeing up funds to invest in the upcoming Summerset Group float?

SNOOPY
I do not think so,as MET share price has not been affected.I think it is the settling down of the placement Craigs did to retail investors of the Tainui holding.I would think that would take six months to a year to bed down.
The Summerset Group float will be interesting as they are a very fine company.With the ageing population,there appears to be a need for huge numbers of retirement villages to be built, so plenty of room for the good operators..
I drove past Aidenfield yesterday and noted a lot building going on at this Halswell Ryman village.

[Beagle]

Roger,
Did you get to the presentation?

Unfortunatly not, I've been buried under a pile of paperwork a mile high, (busy time of year for accountants), which is why I havn't been on here much lately. Have to keep working hard to cover my losses in the market and try and keep smiling :) Running to stand still, know the feeling ?

[percy]

Unfortunatly not, I've been buried under a pile of paperwork a mile high, (busy time of year for accountants), which is why I havn't been on here much lately. Have to keep working hard to cover my losses in the market and try and keep smiling :) Running to stand still, know the feeling ?
Know the feeling very well.Have put my retirement off for 35 years.!!!!!! What is pleasing however is my divie income is increasing each year,no matter where the share prices are.Also pleasing is the strength of NZ companies' balance sheets,with most carrying very little debt.

[percy]

Went to a presentation by CFO Gordon McLeod earlier tonight.Good news there was no bad news.Still looking at Melbourne.I expect they will make an announcement when they announce half year result late November.Interesting Gordon got to know Ryman as his "nana" was a resident at Margaret Stoddard village .So impressed, he joined the firm!!!!!!!!! .Surprised with how well Tauranga [Bob Owens village] has gone, considering other retirement villages there.
All new building going according to plan.Getting offered a lot of developement sites.Demand [quake] has forced them into bringing forward ChCh expansion.
Bank debt still low.Need a bigger footprint in Auckland,[yes Roger]
Sauce,Gordon said because less than half of RYM units were under 5 years old,the resale profits have yet to kick in.
Gordon,spoke well,presented well, and was very comfortable with his subject. He did point out the biggest difference between them and "others" was RYM did everything in house.
Thank you local broker Hamilton Hindin Greene for letting me attend your evening.

[buns]

Good stuff

thanks percy

[mamos]

Ryman buys land in Melbourne for first Australian site

Ryman Healthcare, the retirement village operator, has bought land in Melbourne in its first step across the Tasman.

The Christchurch-based company plans to build a medium-density village in Melbourne’s eastern suburbs which will offer the full range of facilities including independent apartments, serviced apartments, a village centre and an aged care centre, Ryman said in a statement.
The acquisition will lift its landbank to more than 2,500 units and beds, though the company didn’t give a purchase price nor say how much land it bought.
“Our focus will be on successfully establishing this first village in Melbourne, and learning how to adapt our model to the Australian market, while maintaining our expansion in New Zealand,” chairman David Kerr said. “We have been investigating the Melbourne market for almost two years, and we identified an emerging need for both aged care and retirement living in the eastern suburbs of Melbourne.”
In August, the company said it planned to build its 26th village in Auckland’s Howick, buying a 3.5 hectare site, and plans to open new villages in Gisborne, Tauranga and Christchurch in the coming year and wants to lift its build rate to an annual 550 units and beds.
The shares gained 0.3 percent to $2.71 in trading yesterday, and have climbed 17 percent this year.

[percy]

From Craig's latest RYM research update;
Management recently announce well over 40 units pre-sold and are unconditional in Shirley [Christchurch] with several pre-sold more than a year ahead of the villages June 12 opening.
Incredible.!!!!!

[mamos]

Christchurch based aged care and retirement village operator Ryman Healthcare today announced a 15% increase in underlying profit, posting a record for a half year of $41 million. Unrealised valuation gains lifted the reported profit after tax to $60 million.
Ryman shareholders will receive a 15% increase in their dividend. The interim dividend of 3.9 cents per share will be paid on December 9, and the record date for entitlements is December 2.
“We lifted our build rate last year, and that decision is now starting to pay dividends,” said chairman Dr David Kerr. “This is an outstanding result, especially when you consider the additional challenges faced this year by the Christchurch team.”
Shareholders equity lifted 7% to $605 million and the company generated strong operating cash flows of $92 million, up 26% on the same period last year.
“We have generated exceptionally strong operating cash flows,” said Dr Kerr, “which has allowed us to invest heavily in new hospital and dementia care facilities this year.”
“In the past six months alone we’ve opened 170 beds - in New Plymouth, Hamilton, and Auckland, and in the second half we will be opening new aged care facilities in Gisborne, Christchurch and Tauranga to meet the growing demand for these services.”
The NZ Government has recognised the need for an additional 12,000 – 20,000 aged care beds to meet the projected growth in demand over the next 15 years.
The company built and opened 199 retirement village units and 170 aged care beds in the six months ended 30 September.
“We are trading well and are experiencing strong levels of pre-sales at our new villages,” reported Dr Kerr, “so we expect to achieve our target of 15% underlying profit growth for the full year.”

The company recently announced the acquisition of its first site in Melbourne, and has this year purchased land for new villages in Waikanae and Howick.
The company has lifted its build rate to 550 units and beds per annum, holds a landbank of over 2,500 units and beds, and in the year ahead will open new villages in Gisborne, Tauranga and Christchurch.
Statistics NZ estimates the number of New Zealanders aged 75 plus will more than double from 250,000 to 516,000 over the next twenty years. In Australia the outlook is similar, with the number aged 75 plus set to double to 2.8 million.
Ryman currently owns 24 villages nationwide, which each offer a combination of retirement living and resthome care, and serves over 5700 residents.

[777]

A good profit announcement today.

[percy]

Could not ask for more.!
cracker result, and increased divie for Xmas.!!!!!

[Beagle]

Yeap solid result, got to be satisfied with that while the rest of the economy continues to struggle on...

[percy]

Very good article on RYM in this mornings NZ Herald.

[voltage]

great result, if you only owned 1 stock this would have to be it. I do not see any downside for this stock.

[mamos]

My valuation is currently $2.91 using a 10% cost of equity, 50% DPR, Return on Equity (Non-revaluation retained earnings + equity contributions) of 27.5%.

[troyvdh]

I do find it quiet ironic that given all the positive "stuff" beng published about RYM (and that many posters choosing RYM in their 5 picks )...there has been a flurry of disclosures from RYM indicating "disposals".

hold 5000 rym

[percy]

I do find it quiet ironic that given all the positive "stuff" beng published about RYM (and that many posters choosing RYM in their 5 picks )...there has been a flurry of disclosures from RYM indicating "disposals".

Never a good sign insiders selling.I have picked it,and have a large shareholding.

[Pumice]

Ryman have had a decent run of late, I don’t think I’ve seen them hit $3.00 before.
This has been a core investment in my portfolio.

I have little doubt that plenty of elderly cash and tax dollars will be pumped through this company.

[CJ]

I noticed that this morning - a nice steady uptrend.

Bit annoyed I didn't get in sooner but still glad I did.

[Pumice]

If it can break psychological $3.00 mark, hopefully that sets i as a floor price.
It’ll be interesting to see how their Aussie venture goes as well.
Demand for quality units should increase dramatically over the next decade or so, so i'll keep buying.

I got in at pretty low price levels but has only managed to offset some other poor investments (BP plc being one of them…The other will remain nameless)

[percy]

Be interesting to see whether $3 now becomes the support level.With a bit of luck Hoop may update us with one of his fine charts,and comments.?

[Pumice]

$3.20! This stock just keeps going and going.
Not a lot of talk about it though.

[percy]

$3.20! This stock just keeps going and going.
Not a lot of talk about it though.
Went past their village at Orewa the other day,plenty of building going on.Also more building at Halswell.Plenty going on,and be interesting to have an Aussie update from RYM.Must admit 43.20 has surprised me,but enjoying it.

[buns]

What do they say with winners? No news is good news.

RYM has hardly had any big news for years when you think about it. It just chuggs along.

I know there is a lot to go around, however I do feel un easy when reading about Summerset's new land purchases and intentions.

[percy]

What do they say with winners? No news is good news.

RYM has hardly had any big news for years when you think about it. It just chuggs along.

I know there is a lot to go around, however I do feel un easy when reading about Summerset's new land purchases and intentions.

well I think each new village announcement is very big news.
yes they continue to expand without further funds from shareholders.Aussie should be interesting.Summerset appear to be good too,but there is plenty of room for both.RYM model is excellent,so we should see plenty of growth and increased divies over the next few years.

[Zaphod]

This has been a solid performer for quite some time, and one of my larger holdings. Hopefully the investment in the Australian market will perform equally well, as traditionally NZ firms crossing the Tasman has produced quite a mixed bag in terms of returns.

[voltage]

totally agree. How do people see Somerset, competition?

[percy]

Zaphod I think RYM will do well in Aussie.RYM are "total" care,while most Aussie retirement villages are "lifestyle".
They are not risking much,doing it slowly,so will be interesting.Meantime NZ has plenty of growth for all new retirement villages.

[percy]

totally agree. How do people see Somerset, competition?

Summerest and Metlife both have about the same market cap,I think about $350mil,so they are a lot smaller combined than RYM.I think RYM is the market leader,so should out perform the other two.But remember both summerset and Metlife are good companies too.Plenty of room in this market for all.Still not enough villages being built to meet the growing demand.

[buns]

Don't worry about how RYM competes with those guys, its how RYM's profits compete with the money we put in. Can they maintain the ROE's required to justify their value, which is around 20-30% for quite some time.

It's the bidding for the land which becomes an issue for me, these other players have no chance in denting RYM's brand or operating more efficiently. But an awful player can still take land, especially a listed one. That could slow RYM or at squeeze its margins if they feel they have to bid on that land. I mainly worry about this in Auckland and Aussie.

Honestly speaking. My worry is quite theoretical, I actually don't know supply/demand or geographical movements that well in these locations.

No reason to sell, or even contemplate it.

[percy]

Don't worry about how RYM competes with those guys, its how RYM's profits compete with the money we put in. Can they maintain the ROE's required to justify their value, which is around 20-30% for quite some time.

It's the bidding for the land which becomes an issue for me, these other players have no chance in denting RYM's brand or operating more efficiently. But an awful player can still take land, especially a listed one. That could slow RYM or at squeeze its margins if they feel they have to bid on that land. I mainly worry about this in Auckland and Aussie.

Honestly speaking. My worry is quite theoretical, I actually don't know supply/demand or geographical movements that well in these locations.

No reason to sell, or even contemplate it.

RYM do have a large land bank.Everything is done "in house'.A proven model,so no reason for concern.At the present time there are a lot of developers who have gone broke,so would think there is plenty of good sites for everyone.

[CJ]

I was just reading Fisher Funds latest news letter and noticed this:

Fund Portfolio Holdings
New Zealand Growth Fund
Abano Healthcare, Delegats, Fisher & Paykel Healthcare, Freightways, Infratil, Kathmandu, Mainfreight, Metlifecare, Michael Hill, NZX, Opus International, Port of Tauranga, Pumpkin Patch, Ryman Healthcare, Sky Network Television, Summerset, Wakefield Health, Tower Limited, Trademe.

Not sure which is their biggest holding but they are clearly very positive on the industry as a whole. Plus other health stocks like Wakefeild and Abano which are also driven by an aging population.

[buns]

I know they sold down some RYM, however I still think it’s a pretty big holding.

You have to wonder if they buy companies or the industry - both Wakefield and Abano are pretty much investment companies in their own running health business units. Both acquisition heavy of late and doing an average job at it (impairments look likely) to put it nicely.

SKT and POT look new as well? They aren't far off owning the index.

[percy]

What.? no EBO ?
Thought it was Tanui who sold down,not sure whether Fisher did or not.

[Pete]

I was just reading Fisher Funds latest news letter and noticed this:

Fund Portfolio Holdings
New Zealand Growth Fund
Abano Healthcare, Delegats, Fisher & Paykel Healthcare, Freightways, Infratil, Kathmandu, Mainfreight, Metlifecare, Michael Hill, NZX, Opus International, Port of Tauranga, Pumpkin Patch, Ryman Healthcare, Sky Network Television, Summerset, Wakefield Health, Tower Limited, Trademe.

Not sure which is their biggest holding but they are clearly very positive on the industry as a whole. Plus other health stocks like Wakefeild and Abano which are also driven by an aging population.


The Kingfisher (KFL) shares are a near mirror of the Fisher New Zealand Growth Fund. The current top 5 holdings for KFL are;
Ryman Healthcare 15%
Mainfreight 13%
NZX 7%
Freightways 7%
Metlifecare 7%

With the recent rise in the KFL price to 98c, the warrants (KFLWB.NZX - Kingfish Limited 03/09/12 $0.95 Warrants) might be worth a look also. They last traded at 1.4c

Here is a link to a recent Morningstar report http://www.kingfishlimited.co.nz/uploads///morningstar-research-report.pdf

[777]

But who bought the 11,000,000?

[slimwin]

Perhaps Ngai Tahu is freeing some cash up in anticipation of the mixed ownership offering.

[percy]

Wonder if the buyer was Mark Stewart spending the money he had from EBO sale?

[CJ]

They are a south island tribe so maybe they want to cash in on the developments that will have to happen around Chch?

[iceman]

They are a south island tribe so maybe they want to cash in on the developments that will have to happen around Chch?

Yes cash in and probably also feel it is important for them to be a significant part of the rebuild needed urgently in Chch/Canterbury. Good on them I say.

[macduffy]

Market seems to be anticipating a good result from RYM - I am - SP up 2% today, the only stock of a dozen or so that I watch that's not in the red today!

Results were out 19 May last year.

[troyvdh]

Investing is a funny old business....why on earth would you buy a share a few days before an positive expected result....one would have thought that the way this share is performing that an expected positive result is well and trully "built in"...the ideal time to purchase would have been a while ago...surely.....

disc...bought in at $2.....really really really regret not buying a fews back when they were at $1.....like I say investing is funny old business...

[macduffy]

Yes, RYM is one of the few NZ stocks that I'm happy to buy from time to time - and average up on. Now averaging a bit over $2 and don't expect to get any more at that price!

:cool:

[Pete]

Results are posted;

https://www.nzx.com/companies/RYM/announcements/222928

[percy]

What a cracker.!!!!!
Increased demand,increase in build rate,increase in divie.
Well done Ryman.

[Joshuatree]

Think you're right Sparky; 10 th year of increasing profits,divi increased; very sticky stock to keep a grip on.Anyone care to analyze the figs? cheers

[Snow Leopard]

Bit of irrational exuberance pushing the price up.

Nice to see people enjoying themselves, hope the hangover is minor

best wishes
Paper Tiger

[Lizard]

Keep an eye on the free cashflow though.

[Joshuatree]

Dejavu anyone, rinse and repeat. Everytime i read John Mauldlin :) the question arises ......"what shall i do now......?:confused: . Two thirds of the way thru , Denial , Anger , Acceptance or Refusal, Change or defiance, rinse and repeat.

[percy]

Went to an interesting presentation Craigs put on last night.
What made me sit up and think was that at the present build rate RYM are building one new unit every two days.!!!!!

[CJ]

Went to an interesting presentation Craigs put on last night.
What made me sit up and think was that at the present build rate RYM are building one new unit every two days.!!!!!You are WRONG,

They are building 2 units every day!! Their target 550 but they ramped that up to over 700 due to Christchurch.

While they can fill them, they may aswell build them as fast as they can.

[percy]

You are WRONG,

They are building 2 units every day!! Their target 550 but they ramped that up to over 700 due to Christchurch.

While they can fill them, they may aswell build them as fast as they can.

Yes well what can I say..!!!!! Hard when you are dyslexic and are having the early stages of alzheimers's,and are deaf.
Two a day.Fantastic.And thank you for correcting me.

[Snow Leopard]

Keep an eye on the free cashflow though.

About $26m I think, this year.
And with a net asset backing of $1.30

best wishes
Paper Tiger

[stephens.pc]

Free cash flow is a deceptive metric when applied to a growth company like Ryman. If you added back the capital expenditure associated with growing the portfolio, and just left in the expenditure required to maintain the existing asset base, that $26m figure would rise substantially.

[h2so4]

Free cash flow is a deceptive metric when applied to a growth company like Ryman. If you added back the capital expenditure associated with growing the portfolio, and just left in the expenditure required to maintain the existing asset base, that $26m figure would rise substantially.

Excellent. So what is the expenditure required to maintain the asset base?

[CJ]

Excellent. So what is the expenditure required to maintain the asset base?Ryman share price factors in future growth so you cant just leave out capex required to grow the portfolio. 550-710 beds per year doesn't come cheap.

[h2so4]

Right, right. I thought about that after posting but it would still be interesting to have the capital maintenance figure.

[voltage]

this must be the 1 standout NZ company. Dividend growth continuous. I am sure the figures are what buffett would like. I have a rental that gives a yield of below 5% net. I am thinking of selling and switching the capital to ryman. A dividend increase of 15% far outperforms may be a 3% increase in rents with a typical rental.

[Lizard]

this must be the 1 standout NZ company. Dividend growth continuous. I am sure the figures are what buffett would like. I have a rental that gives a yield of below 5% net. I am thinking of selling and switching the capital to ryman. A dividend increase of 15% far outperforms may be a 3% increase in rents with a typical rental.

Or you could just borrow a bit more against the rental and pay yourself out of the capital gain. :P

[troyvdh]

Voltage ...Lizard is right...at least you keep the property....if you are "investor"...with an horizon of 10 years plus...I doubt you can loose....funnily enough..... talking to a mate(ss) last night...(CHCH)...being offered a price from the council for her home (given the EQ/GV) ....unspectacular......which she had owned for 11 years.....she will have ultimately have earned $437 per week.......in CG....not a headline sexy return...over that period....but none the less...

PS...."selling and switching"....could probably cost (depending on value of property)....$10000....$30000......

...good luck

I forgot to mention...in my opinion if you can retain the value of your capital (let alone any gain)...you are doing better tha most....in these "spooky"....times...

[skid]

Talk of borrowing to buy any share in todays market is just plain scarey--Switching over to an investment you like better is fair game,but these are times to be conserving what youve got IMHO

[Lizard]

Talk of borrowing to buy any share in todays market is just plain scarey--Switching over to an investment you like better is fair game,but these are times to be conserving what youve got IMHO

Wasn't suggesting that. Just that RYM are increasing borrowings beyond the rate they pay divs, so could say they are borrowing against the increase in property values to pay that great div that Voltage referred to.

Of course it's not that simple - like most things with RYM - so I don't really want to start another debate.

[voltage]

thanks for the comments but at the end of the day what really is the difference between borrowing to buy an investment property or shares that pay a dividend.

[Sauce]

thanks for the comments but at the end of the day what really is the difference between borrowing to buy an investment property or shares that pay a dividend.

Hi Voltage,

There are a few differences:

1. The income from a rental property is very steady and secure (generally speaking). This means your ability to service your debt is fairly certain. Using dividend income to service debt is more risky because business profits can disappear due more easily - competition is fierce; business models can be disrupted, demand can subside, managers can make mistakes.

2. Markets themselves can be irrational - you could end up having a margin call because the share price has tanked even though the business is still profitable. In theory real estate prices could do the same but prices are not quoted daily, they are not as liquid, and as result (partly) prices are not as volatile.

3. If the company already has debt leverage then you are actually doubling up and are likely to be unnecessarily increasing your risk.

Obviously these risks could be carefully managed. But in my opinion if you choose the right businesses you shouldn't need the extra leverage anyway.

Regards,

Sauce :)

[voltage]

Thanks Sauce. I suppose I look at Ryman no borrowings and its amazing track record, but as you say there is more certainty with property.

[Sauce]

Thanks Sauce. I suppose I look at Ryman no borrowings and its amazing track record, but as you say there is more certainty with property.

Hi voltage

Ryman has a debt to debt plus equity ratio of about 30 percent. They use debt predominantly to fund working capital (I.e. to build villages) and then the villages self fund thereafter through the occupancy advances.

In comparison to typiclal property developers and investors (and relative to their strong cash flows) they are very conservatively geared, but they definitely use debt funding.

I am heavily exposed to RYMAN but personally I don't think it's necessary to buy the shares on margin. With such a high conviction you could just go concentrated instead and let them compound your wealth through secular growth :)

I totally agree with your assessment of RYMs economics relative to investment property. But for what it's worth (nothing really) my money would be on your equity growing much faster 100pc invested in Ryman, with no debt, rather than leveraged into a rental property in NZ using debt. In fact, my money is on it, as close to a third of my net worth my is laid on the same bet ;)

Regards

Sauce

[Sauce]

Wasn't suggesting that. Just that RYM are increasing borrowings beyond the rate they pay divs, so could say they are borrowing against the increase in property values to pay that great div that Voltage referred to.

If you wanted to be cynical you could surmise that a dodgy operator could pay dividends to themselves out of the occupancy advances that are held. a better target for that cynicism is metlifecare. By my calculations if they did not suspend dividends and raise capital when they did, they would have begun the initial stages of a ponzi scheme.

The increase in RYMs debt is, apparently, to fund working capital for first village in australia. Which, incidentally, is not included in the new run rate of 700 units pa (Nz only) The increase in build rate is very significant, and with building about to start in australia, further impetus could come sooner rather than later. Although they have made it clear they will bed the village down and review results carefully before progressing au expansion. So village two in aus will be awhile away - but in no way is it needed to make an investment case.


Of course it's not that simple - like most things with RYM.

Turns out RYMs economics are quite simple but people get confused by the accounting rules (confused me anyway)

Cheers
sauce

[Sauce]

Free cash flow is a deceptive metric when applied to a growth company like Ryman. If you added back the capital expenditure associated with growing the portfolio, and just left in the expenditure required to maintain the existing asset base, that $26m figure would rise substantially.Hi Stephens.pc

Exactly! But you also have to be careful adding back growth capex. Ryman are able to invest vast amounts of residents cash, the occupancy advances, in growth. It's basically 'costless' capital - a bit like buffetts insurance float. This is what makes their return on shareholders funds so high, but ultimately they have to pay it back. If you added this in as owners cash flow you would overstate it.

Luckily rym make it easy for us. The 'cash profit' of 84m is the correct number to focus on. Is is effectively the 'owner earnings' or, in other words, the cash that could be legitimately be taken out for owners without eating into the residents occupancy advances. Otherwise your effectively a ponzi scheme :scared:

The fact that half of it is being piled back in to growth is what makes the maths so compelling. So traditional free cash flow is not all that useful as you say.

Regards
Sauce

[Sauce]

For anyone interested in Rymans profitability:

The cash profits are the realised (banked) portion of Ryan's profit margin, over and above the future liability to pay back their residents when they die.

There is a significant unrealised margin captured also, but as this flows through to the cash profits in the future, it's not significant to the 'owner earnings' of the year it is recorded. This is the 'tail' of cashflows that Ryman talk about.

it's growth in the stated 'cash profits' over time that we want.

The reality is incoming residents fees provide the cash to payout the exiting ones anyway, so the villages become totally self funding, meaning Ryman can take the cash and use it elsewhere. But that doesn't mean it's profit, they always have the corresponding liability.

Cheers

[CJ]

. This is what makes their return on shareholders funds so high, but ultimately they have to pay it back. If you added this in as owners cash flow you would overstate it.Arguably they dont have to pay it back as, in a rising market, it is always met by the incoming resident.

[Sauce]

Arguably they dont have to pay it back as, in a rising market, it is always met by the incoming resident.

Hi cj

Yes true, what I mean is; they always have the corrosponding liability, so it's not profit.

In economic terms buffetts Insurance float is similar. People pay their premiums and a certain amount of the cash recieved will need to be paid out in the future as claims. This 'float' held by the company is not pure profit obviously and it cant be consumed, but they can invest it and use the profits to generate high returns for shareholders.

Ryman are a compounding machine quite unlike any other business on the nzx. It will be interesting to watch their progress but if you have a good understanding of the maths you can see that they are a serious contender to top nzx by market cap in 10 plus years.

There is no other business in the top 5 that have the combination of high returns, long term reinvestment potential, and corrosponding growth rate. RYM is highly likely to overtake them in coming years.

Regards

Sauce

[voltage]

Thanks Sauce for all those comments. If you are after dividend growth is there any other stock you would recommend or do you as you suggest just concentrate in this one stock. Tel and LPT have higher yield but it is the growth in dividend you want over the long term.

[Sauce]

Thanks Sauce for all those comments. If you are after dividend growth is there any other stock you would recommend or do you as you suggest just concentrate in this one stock. Tel and LPT have higher yield but it is the growth in dividend you want over the long term.

My understanding is that kiwi companies tend to have high dividend payout ratios (how much profit is paid out vs how much is retained for growth) relative to other markets. This makes sense because our markets are small; if there are limited opportunities for reinvesting the cash at good returns then the best thing to do is to pay the money to shareholders. The problem is the nature of competition in business means things can change. Dividend yields are only as good as the underlying cashflows and how sustainable they are.

A business with a 7 - 9% dividend yield is not necessarily the best investment, or even a good one. It could be paying nothing in two years time. And even a stable 9% return can be eclipsed very quickly by a company paying a low dividend yield that can turn every dollar of profit it retains into more than a dollar of economic value.

I would rather have a 2.5%pa payout growing sustainably at 15%pa, than a steady 9%. If I need more cash to spend I can take a bit off the top by selling some shares and realising capital gain. And in NZ the capital gains are tax free. If the company was paying out 100% of its profits as a dividend I would lose a third of it to tax.

Concentration vs Diversification:

My opinion is that diversification and portfolio theory works but it depends on your circumstances and how you invest whether you diversify or not. I don't believe I have the time or brain power to understand 10 businesses as well as I think I understand RYM - so buying ten businesses would simply dilute my returns. The upside would be that it would protect me from going broke on a bad bet.

I am concentrated in RYM because I believe I understand how sustainable its returns are more than I do for any other business. I have a strong conviction that I have excellent odds of being vaguely right about its competitive position in ten or even twenty years time. I have been involved in the property industry most of my life and I have had first hand experience with the demand side (dealing with the elderly, their families and their decision making processes) and the supply side (property development/investment) that are integral to RYMAN business model. I do not have any direct healthcare experience, but I can understand the economics of the care services and how offering the full spectrum of stepped care until you die provides a compelling value proposition for people at the last stages of their life. I also know how well RYM execute relative to the rest of the pack. And how hard it would be to replicate their assets and skills from a standing start (their 30 years of experience and refining the model makes it look and sound a lot easier than it really is).

However, if I didn't feel I had certain insights then being so concentrated would be dumb. A roll of the dice. So I think it depends on your own conviction about your knowledge of the business and how murky or clear the future economics are to you.

The short answer to your question is that I don't know of any other companies (in NZ) that I would buy, for both dividend growth and capital gain, in addition to RYM and that's why I don't hold any others. Others will have different convictions and opportunities that might be as good or better.

I hope that helps :)

Sauce

[Sauce]

imputation credits might mitigate that tax point regarding dividends...

[percy]

Sauce.
Still really enjoying learning from your posts.Thank you.

[Snow Leopard]

About $26m I think, this year.And with a net asset backing of $1.30best wishesPaper Tiger
Morningstar via ASB reckon the free cash flow was -$13m, (they are a lot more likely to be right). But what's $40 between friends?

On the basis of the underlying profit being 'slightly' more than they predicted they have also changed their recommendation from 'Hold $2.70' to Accumulate $4.00. Don't you just love them?

best wishes
Paper Tiger

[percy]

Morningstar via ASB reckon the free cash flow was -$13m, (they are a lot more likely to be right). But what's $40 between friends?

On the basis of the underlying profit being 'slightly' more than they predicted they have also changed their recommendation from 'Hold $2.70' to Accumulate $4.00. Don't you just love them?

best wishes
Paper Tiger

No surprises there.!!!!!! Best used to be Macquarries who change their perfered Bank every month>.There used to be a song based on this,
"there is a season,churn,churn,a season to churn,churn ,churn,etc."
As for reliable valuations of RYM Sauce has the best track record.

[ENP]

The short answer to your question is that I don't know of any other companies (in NZ) that I would buy, for both dividend growth and capital gain, in addition to RYM and that's why I don't hold any others.

That being said, what other companies in Australia or world wide also fit your criteria (or are in your porfolio if you don't mind me asking).

[voltage]

ramsay healthcare in aussie has similar characteristics

[Sauce]

That being said, what other companies in Australia or world wide also fit your criteria (or are in your porfolio if you don't mind me asking).

Hi ENP

ASX: Austin Engineering (ANG). Its been my best investment and I expect that it will hold that status for a long time. Very different kind of business to RYM, but a very good business.

Regards,
Sauce

[ENP]

Hi ENP

ASX: Austin Engineering (ANG). Its been my best investment and I expect that it will hold that status for a long time. Very different kind of business to RYM, but a very good business.

Regards,
Sauce

Doesn't the fact that it has been growing the amount of debt it is taking on and the amount of shares it continues to issue whilst only having a stagnating EPS figure around 29c the past few years concern you? Also it's ROA and ROE figures as of late have been declining. It's using more money to make the same money.

Also RYM is in an industry with significant upside (the amount of people retiring and requiring the services over the coming years will be large). However with ANG, it is directly linked to the mining industry whose near term future is uncertain. Does this also concern you?

I'm trying to pick your brain here, so these are questions rather than trying to start an argument.

[Sauce]

Doesn't the fact that it has been growing the amount of debt it is taking on and the amount of shares it continues to issue whilst only having a stagnating EPS figure around 29c the past few years concern you? Also it's ROA and ROE figures as of late have been declining. It's using more money to make the same money.

Also RYM is in an industry with significant upside (the amount of people retiring and requiring the services over the coming years will be large). However with ANG, it is directly linked to the mining industry whose near term future is uncertain. Does this also concern you?

I'm trying to pick your brain here, so these are questions rather than trying to start an argument.


Those are great questions ENP, well said.

The south American expansion is behind schedule and that is reflected in flat eps and declining roe over the last two years but a large amount of their expansion is now online and will contribute to the current second half. With full guidance of 45 to 50m we should see eps of 37- 39cps and ROE back to high 20's and further increases in 2013. the potential margins in south America are much higher than Australia.

The productivity gains the miners can get from using Austin's customized trays, Austin's local manufacturing advantage (they appear to have a significant first mover advantage in setting up localised facilities), and integration with maintenance and service capabilities (I.e. offer the full package), provides a compelling investment case.

Regading the macro outlook for mining: firstly, my understanding is that while mining expansion is good for Austin, it's not essential. For example during the gfc when all projects were out on hold Austin managed very well, increasing efficiencies, margins, and profits year on year. The products are replaceable, if mines are not expanding they work their existing mines harder and a procductivity enhancing value proposition like Austin's is ideal. I.e. Customers can extract more value from existing mines to help offset lower commodity prices. The products they sell are expensive, high margin, and ultimately consumable - so there is a large replacement cycle which should provide a tailwind also. It's also appears that more and more miners are discovering the benefits of using customized trays, and that acceptance of the benefits is relativel new in many areas, meaning there apears to be a lot more market penetration Potential. This is also evidenced in austins global expansion plans with Africa, Russia, Mongolia etc on the cards going forward.

And finally, for me, it's a bottom up bet rather than a top down one. The micro-economics are very good.

I am happy with debt levels: the interest cover is so high there's almost no cat-risk in my opinion and I am happy around 30pc debt to debt plus equity.

If I was to complain, I would prefer it didn't have such fragmented ownership (thousands of small shareholders and management hold only approx 4pc of the company) and the management incentive scheme is stupid - i.e. short term incentives based upon short term changes in the share price (the board should surely know better), options issued left right and centre etc. and corrosponding dilution for shareholders. The sort of skimming from the top you see tend to see, more often than not, when you don't have a founding shareholder with a nice majority stake.

thats the way the world turns sometimes.

So the short answer is: I feel comfortable that I understand why their return on incremental capital dropped away, and very comfortable that the odds are stacked in favour of a strong rebound in such measures.

Its not nearly as high quality as Ryman, but im very happy with my investment in ANG (and it's provided greater rewards over the last six years! :) )

Cheers
sauce

[voltage]

Sauce, what great answers about ANG. Any comments on RHC which has superb dividend growth like ryman. Dividends for the last 10 years -2011- 52c, 2010 – 43.5, 2009 – 38c, 2008 – 32.5, 2007 – 29c, 2006 - 24c, 2005 – 20c, 2004 – 17.5c, 2003 – 15.5, 2002 – 11c

[ENP]

Thanks for the constructive answer you put together Sauce. Lots to be learned and you have obviously done your homework.

Voltage, Ramsay healthcare is great but it is being priced at a premium at around 20 P/E, it's just a bit too expensive for my liking. If it goes down to 14 P/E like Ryman then I'll definitely be looking closer at it.

[voltage]

I must admit Ryman is the one stand out stock in NZ

[Sauce]

Sauce, what great answers about ANG. Any comments on RHC which has superb dividend growth like ryman. Dividends for the last 10 years -2011- 52c, 2010 – 43.5, 2009 – 38c, 2008 – 32.5, 2007 – 29c, 2006 - 24c, 2005 – 20c, 2004 – 17.5c, 2003 – 15.5, 2002 – 11c

Hi Voltage,

Re: RHC - Have had a glance over the years but I don't have any insights

Ramsay did very well with a highly leveraged play, buying the larger Affinity in 2005.

The preference shares sit as equity on the balance sheet, but I think it behaves more like debt leverage in terms of its effect on profitability for common shareholders. Presumably the additional book equity helped them secure the high levels of debt funding they needed to fund Affinity, while not diluting shareholders. It appears to have been a very successful move.

Arguably highly geared, but appears to have great assets and very good management with rare talents when it comes to acquisitions. But these are just guesses from a cursory glance, I really don't understand this business at all.

Cheers
Sauce

[Sauce]

Thanks for the constructive answer you put together Sauce. Lots to be learned and you have obviously done your homework.


I got a very lucky with Austin when I first bought in, as I really didn't understand it then at all, but I feel I have a much better grasp on it after following it closely for 6 or 7 years and researching various questions as they arose. Although I am constantly questioning myself as to whether I really do have any insights.. I think its very important to be cynical about ones understanding of underlying businesses, as I feel the odds are against most outsiders being right a lot of the time, and all sorts of inbuilt biases can lead to terrible decisions.

One thing I have found is that cursory glances at underlying quantitative measures do not tell the whole story. Clearly businesses profits do not always go up in a straight line (RYM may be a rare exception to that!) and so an understanding of Capex programs, how they are funded, and both how high the return is likely to be, plus when it is likely to arrive, is essential to being able to assess the true economics of a business.

Cheers

Sauce

[voltage]

Sauce, you are very clued up how to analyse balance sheets, this is beyond most people. Broking firms have people full time doing this. Any advice for the average punter?

[Sauce]

Sauce, you are very clued up how to analyse balance sheets, this is beyond most people. Broking firms have people full time doing this. Any advice for the average punter?

Thanks for the kind words Voltage,

As an average punter myself, my suppositions could be wrong - so please don't take my guesses for gospel and I certainly wouldn't want to lead anyone astray by offering advice :)

I think Charlie Munger is a great person to listen to, and he says the key is continuous learning.. If your wife complains about the lack of quality time because you always have your head in a book, a pen in your hand, are tucked away in your study, or distracted by the annual report on your Ipad, then my guess is that you are on the right track. At least for your investment career, perhaps not your marriage :blink:

Cheers

Sauce

P.s. Sharetrader doesn't count :p

[rocketman11]

Hi guys, would like to hear people's opinions on how the Metlifecare merger may effect Ryman?
(see NZH article: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10811366)
My thinking would be that with Metlifecare growing substantially, a large increase in there underlying cashflows and investors could see them putting up stiff competition to Ryman and perhaps taking a significant share of the market from Ryman. Opinions would be much appreciated.

[CJ]

My uneducated view is the market is growing as is big enough for the three of them (including summerset) plus all the small players. Rymans offering is very good which is independent of size of the wider group - that is what attracts the old folk.

[Joshuatree]

Hi, fair question im not intimate with all the details(and don't want to be).Ryman is a superior operating model imo ,Metlifes returns aren't nearly as good. Rymans model of building their own villages also far superior to buying existing villages, re pricing ,quality control in-house etc. Plenty of room for both in a growing mkt. Of course the price Metlifecare will pay is int.Buying off Goldman Sachs ,the Cannibal Vampire Squid ,well good luck getting a good deal! Incestuous buying off Retirement Village Group which has 50.1 % of Metlifecare ,will the small guys be looked after? Maybe they will switch to Ryman. Are all the assets in NZ if not my understanding is margins are lower in aus.got a feeling this will ultimately be better for Ryman; now wheres the Sauce? cheers

[percy]

Summerest and Metlife both have about the same market cap,I think about $350mil,so they are a lot smaller combined than RYM.I think RYM is the market leader,so should out perform the other two.But remember both summerset and Metlife are good companies too.Plenty of room in this market for all.Still not enough villages being built to meet the growing demand.

Post 656 15/4/12

[Joshuatree]

Percy are we inside your head or did your lips just move:eek2::cool:

[rocketman11]

Hi, fair question im not intimate with all the details(and don't want to be).Ryman is a superior operating model imo ,Metlifes returns aren't nearly as good. Rymans model of building their own villages also far superior to buying existing villages, re pricing ,quality control in-house etc. Plenty of room for both in a growing mkt. Of course the price Metlifecare will pay is int.Buying off Goldman Sachs ,the Cannibal Vampire Squid ,well good luck getting a good deal! Incestuous buying off Retirement Village Group which has 50.1 % of Metlifecare ,will the small guys be looked after? Maybe they will switch to Ryman. Are all the assets in NZ if not my understanding is margins are lower in aus.got a feeling this will ultimately be better for Ryman; now wheres the Sauce? cheers

Some very good points, yes I definitely think Rymans self-building model is far superior to buying existing as you say, I guess my concern (as a Ryman holder) would be that the merger would provide Metlife with the kind of economies of scale that can generate significant cash-flow (much like Ryman) allowing them to soak up a much bigger share of the impending growing demand. But as you say it does seem there is plenty of room for all. Ahaha yes the sauce insight would be interesting!

[percy]

Percy are we inside your head or did your lips just move:eek2::cool:

Lips just moved.!!!!! All these points,concerns have been answered in previous posts.Just go back a few pages.Still concerns just go back further.Just keep going back,then we all can move forward knowing are the market leader in a growing market.Rymans model is the bench mark.MET will have enough problems of their own to sort out.

[Sauce]

Hi Rocketman11

I spent some time analysing the Metlifecare deal after the report came out that included data on the target villages. To be honest, I am convinced the thing is a ghoulish plan for existing Metlifecare shareholders. I will post my thoughts on it soon on the Metlifecare thread to see what others think.

In terms of your interest in RYM; I see no reason for concern. In some ways the opposite - a consolidation of villages (of dubious initial quality) under a single owner with management who have done a terrible job so far; there's an argument it is less threatening.

The competitive landscape won't really change that much. Metlifecare get some land, and possibly some procurement advantages. But the reporters and analysts that state their new size will allow them to "take on their rivals like RYMAN" are missing the point - RYMANs value chain has been built on a long period of constant refinement with an extremely high underlying level of continuity in their business. their experienced in-house design/build team are so far ahead in experience and build program scale. Comparatively, they also hold much better locations. I strongly suspect, while it might help procure better rates in some areas, having more villages doesn't automatically bring your per unit cost down dramatically either; Ryman's individual villages themselves have been increasing in size, and with the build rate increases and ongoing development program in place, their advantages will remain unmatched.

In contrast, Metlifecare as they are now, and their merger targets are a mish-mash of economically unprofitable villages (on a cash-to-owners basis) with no evidence the locations are superior (some evidence of the opposite), many of which offer only independent living, and its a bit hard to tell, but by the looks of it none that offer the full continuity of care (but some with aged care + independent).

There is just no continuity to what they are doing, and no defined strategy. They have no genuine value chain that I can ascertain. If you can't manage your existing business well, then it does not make rational sense to increase the size of it and expect you will be able to manage that any better.

Charlie Munger says it best; "when you mix raisins with turds, they are still turds"

Finally, I think CJ, Joshuatree, and Percy are spot on; Ryman simply do it better, and the wave of demand is likely to make it a moot point anyway - the country has a big problem on its doorstep - What do we do with all the Babyboomers? - and we will need more than RYM, MET, SUM, and the small operators, to take care of it in coming years (next 30 or so).

Regards,

Sauce

P.s. If I was Metlifecare shareholder (no chance in its current or merged form) I would be voting against the merger.

[Sauce]

what I mean by continuity is cohesion within in their business model - i.e. Metlifecare are all over the place: buying villages that under different care models, assuming other peoples development programs, buying access to their design teams - etc etc. They needed to have built these skills and processes and profitable village models up organically over time already. In my opinion its risky and stupid to make adhoc attempts to "scale up" when you can't get it right to start with.

[rocketman11]

what I mean by continuity is cohesion within in their business model - i.e. Metlifecare are all over the place: buying villages that under different care models, assuming other peoples development programs, buying access to their design teams - etc etc. They needed to have built these skills and processes and profitable village models up organically over time already. In my opinion its risky and stupid to make adhoc attempts to "scale up" when you can't get it right to start with.

Thanks for the response, much appreciated. I have to say I am very unfamiliar with Metlifecare but I guess their performance history relative to Ryman speaks for itself in backing up what you say.
Another question which I would love to get your opinion on is the Euro debt saga and how this may affect Ryman. I have discussed this with friends and seem to get a wide-range of views. One theory is that another 'financial crisis' could spark a fall in property here, similar to what has previously been seen U.S and that this could severely affect Ryman's Asset valuations and could see a drop in the surge of investor support for Ryman.
Personally I think that any fall in property could be advantageous to Ryman, as they would be able to increase their retirement village production much faster whilst riding out the downturn on the back of their strong cashflows (which I can only see getting stronger) and cash assets. Seeing as the euro situation seems to becoming more and more important would be interested to hear your thoughts on the matter? Cheers

[Sauce]

Hi Rocketman11,

I think Real Estate in NZ is overvalued, but I would be highly surprised if there was any collapse on the cards. We simply do not have the over supply issues that exist in other heated property markets that have crashed. We have tight supply and low interest rates which will underpin the high prices.

On the other side of the coin, I find it hard it hard to imagine how property could have anything like a decade like the past 10 years, in the next 10 years. In fact I would bet heavily against that. With the majority of the average income going towards paying the average mortgage in NZ, anyone who thinks property prices will double in the next 10 years has a hopeful persuasion indeed.

My best guess is a long period of - possibly mildly volatile - sideways growth for NZ residential property, until wage growth and incomes catchup. Of course, longer term (over our lifetimes), property will still be a great thing to own and provide a good hedge against inflation (especially leveraged real estate) etc etc.

How would another property debacle effect RYM? I totally agree with your assessment that it would probably be good for RYM in the longer run. They require a replenishing landbank of quality sites to continue their expansion. The current environment is ideal for them because development land has been the hardest hit - competition is light and finance is harder - if this continues or gets worse it will be great for RYM.

When it comes to their own sales; RYM have waiting lists for their villages and practically zero vacancy. That tells you something very important about the demand for their villages. In my experience, the elderly moving into retirement villages, and usually their families who are facilitating the process, are the most motivated home sellers. It is a very need driven demand. Older folks, and their families, simply have to do something when they cannot care for themselves. So if property is hard to sell, they will be the first to meet the market prices. And RYM have such strong demand that even if some do not meet the market, or cannot find a buyer, another one will.

Of course, there is some relationship between house prices and profits, because RYM base their initial unit prices on the surrounding suburbs real estate prices, and that also affects the re-sale prices and capital gains that go to RYM, but because the demand side is so strong, I strongly suspect they have more inherent pricing power than people realise (evidenced during recent downturn).

I believe the best way analyse the potential impact is to see how the collapse in housing demand effected them during the lows of 2008/2009 - When they managed to book profitable growth in the worst housing market for decades. They have also increased unit prices since then, even with declining property prices in some areas (Wellington most notably).

Contrastingly Metlifecare got smashed.

I hope this helps

Cheers

Sauce

[Sauce]

All that positivity should be balanced of course - RYM surely has its challenges;

Operationally dealing with the ever growing build rate can't be easy, not tripping themselves up I think is probably the biggest risk, and obviously dealing with the different market in Australia and the realities of that. Possibly future regulation (although seems unlikely with problems we face) - but maybe something out of left field could trigger it, like an unscrupulous operator running a ponzi scheme on the "licence to occupy" model or something..

RYM might offer good security and rock solid guarantee to its residents, but to its shareholders its still just a very very good bet.

Cheers

[rocketman11]

Thanks Sauce, really enjoying the well thought out and backed-up answers that you provide, much appreciated.
Also good point about the regulation, that has been inflated as topic by the media recently (often specifically mentioning Ryman) in my opinion though there are far more targets that need regulation before retirement homes would even be looked at. And even if it did come to that I would expect Ryman to rise to the challenge.

Great to hear and think about a wide range of scenarios,
Cheers

[modandm]

Hi Rocketman11,

How would another property debacle effect RYM? I totally agree with your assessment that it would probably be good for RYM in the longer run. They require a replenishing landbank of quality sites to continue their expansion. The current environment is ideal for them because development land has been the hardest hit - competition is light and finance is harder - if this continues or gets worse it will be great for RYM.

When it comes to their own sales; RYM have waiting lists for their villages and practically zero vacancy. That tells you something very important about the demand for their villages. In my experience, the elderly moving into retirement villages, and usually their families who are facilitating the process, are the most motivated home sellers. It is a very need driven demand. Older folks, and their families, simply have to do something when they cannot care for themselves. So if property is hard to sell, they will be the first to meet the market prices. And RYM have such strong demand that even if some do not meet the market, or cannot find a buyer, another one will.

Of course, there is some relationship between house prices and profits, because RYM base their initial unit prices on the surrounding suburbs real estate prices, and that also affects the re-sale prices and capital gains that go to RYM, but because the demand side is so strong, I strongly suspect they have more inherent pricing power than people realise (evidenced during recent downturn).

I believe the best way analyse the potential impact is to see how the collapse in housing demand effected them during the lows of 2008/2009 - When they managed to book profitable growth in the worst housing market for decades. They have also increased unit prices since then, even with declining property prices in some areas (Wellington most notably).

Contrastingly Metlifecare got smashed.



I think you make some good points here Sauce but you need to be careful because you could be accused of rose tinted glasses with some of this well constructed arguement.

The last point you make is for me telling. A competitor got smashed. RYM was fortunate and did not. However to assume that RYM would be fortunate again is not sound IMHO.

I would suggest if a true property market correction took place - 20-30% falls in house prices across the board - RYM would be heavily impacted to the negative and the shareprice the same. You cannot escape the fact RYM is a leveaged property development play to some extent and the rise in house prices over the last 10 years has been a huge tailwind to the performance of the business.

[percy]

Biggest tailwind is aging population.In fact a force 10 gale is predicted.

[CJ]

I would suggest if a true property market correction took place - 20-30% falls in house prices across the board While I agree house prices are overpriced, there is no way we will see a correction due to lack of supply. China, US (even Australia to a degree) built more houses than they need. NZ is doing the opposite. And whats more our current housing stock is crap - Old draft villas only sell for millions due to great location and require another few hundy to refurbish, one decade of leaky homes, lots of small old houses that even the poor think are below them.

[skid]

So to play the devils advocate-what are the things that are most out of the control of RYM
They are obviously very good at running their homes -They seem to have happy workers with above average pay[although the job market is tight which makes it easy for them to keep workers]-They certainly have demographics on their side[plenty of wrinkleys coming along]---That really leaves the 2 biggies-the price of the land,and the cost of building. Building costs are possibly the main hurtle if they keep going North at the present ridiculous rate. Of course rising land and building costs then lead to affordability issues if a large segment of the older population have been walloped financially already, with the downturn.
I guess these are things to keep an eye on ,just to make sure that this overachiever stays that way. Im sure lots wish they'ed jumped on this wagon years ago,but I suppose that is irrelevant if it keeps its steady progression North.

[Sauce]

I think you make some good points here Sauce but you need to be careful because you could be accused of rose tinted glasses with some of this well constructed arguement.

The last point you make is for me telling. A competitor got smashed. RYM was fortunate and did not. However to assume that RYM would be fortunate again is not sound IMHO.

I would suggest if a true property market correction took place - 20-30% falls in house prices across the board - RYM would be heavily impacted to the negative and the shareprice the same. You cannot escape the fact RYM is a leveaged property development play to some extent and the rise in house prices over the last 10 years has been a huge tailwind to the performance of the business.

Hi Modandm :)

I was a bit concerned that my post my have appeared biased optimistically. Hence my second post to balance it out a bit, outlining some of the real risks that RYM face.

My comments about Metlifecare getting "smashed" may have appeared flippant, but in 2008/9 I spent a lot of time analysing the effect of the crisis, and property downturn, on RYM and Metlifecare. As a result, I placed a very large (relative to my portfolio size) bet on RYM. Here is an over-simplified summary; I found emperical evidence that Metlifecare's unit pricing was comparitively expensive going into the crisis and Metlifecare had no cost or pricing flexibility. Basically, their villages did not have the same "degree" of demand (due mainly to differences in location, reputation, amenities, levels of care and relative price) and their cost structure does not have the efficiency, enjoyed by RYMAN. In terms of the effect on their respective profitability? well that is obvious isn't it. (in terms of the investment case between them, there a mile of other differences, but these points are in respect to why the crisis effected their underlying profitability so differently)

So my thesis is not that RYMAN were "fortunate", as you put it. Far from it. It is the intrinsic advantages they have, relative to the competition, that helped them fair so well, and would similarly help them in another crisis.

I agree that RYM are not completely immune to house price movements. As I mentioned, their unit pricing and realised capital gains, to some degree, are based upon house prices in each villages catchment area. It really depends on the degree you assume they would suffer in a protracted downturn, but judging by the tone of your post, it is my opinion that their business model is more resiliant than you think. The thing you have to remember is that RYM operates in a unique segment of the property market which has a very large supply and demand imbalance. The supply and demand economics will not change dramatically for RYMAN, even if it does for "residential property" in general.

Regardless of all that, a bet on RYM doesn't necessarily have to assume they are able to withstand a 20% - 30% correction in nominal house prices, as such a scenario is very unlikely.

I note that RYM grew 17% this year and are confident of continuing to grow at their 15% target for some time (I suspect they might beat that by a point or two in the short term, due to the substantial build rate increase). And yes, some of their current and future profitability is indeed due to the "tailwind" of historical price rises.

Your welcome to disagree with some, or all, of these points of course. We couldnt all have the same views or opportunities would not exist :)

With regards,

Sauce

[Sauce]

While I agree house prices are overpriced, there is no way we will see a correction due to lack of supply. China, US (even Australia to a degree) built more houses than they need. NZ is doing the opposite. And whats more our current housing stock is crap - Old draft villas only sell for millions due to great location and require another few hundy to refurbish, one decade of leaky homes, lots of small old houses that even the poor think are below them.

I asbolutely agree CJ. This is exactly why we did not have a collapse like the US.

And also New Zealanders preference for property, shallow capital markets, and mistrust of the sharemarket.

It does seem unlikely that property will be a good investment in real terms for awhile though!

Cheers

Sauce

[Sauce]

-That really leaves the 2 biggies-the price of the land,and the cost of building. Building costs are possibly the main hurtle if they keep going North at the present ridiculous rate. Of course rising land and building costs then lead to affordability issues if a large segment of the older population have been walloped financially already, with the downturn..

Hi Skid, their handle on building costs is partly what makes their model so compelling. Their value chain is significantly enhanced by their experienced in-house build team and village designs, and their procurement advantages. They can keep building costs down and deliver on time, build very efficient villages, enhance margins and therefore they have more control over the prices they can charge. It is incredibly hard to replicate this.

Perhaps there is a possibility of them running out of a ready supply of affordable development land in good locations. Although the stars seem aligned for them right now in this regard, it would be good to see them replenishing their landbank.

Cheers
Sauce

[rocketman11]

A point that I think is worth considering, is that it is inaccurate to compare NZ's residential house-market to the type of unsettled land that Ryman is in the market for. Even if Ryman were to be hit by a property value decrease I am sure that they would easily ride through, if not even be benefited, here's why:
As the age-old teaching goes- property investors only lose money when their portfolio is too negatively geared for a sudden change in the economic environment, however Ryman's 'much hyped' cashflows are what allows them to ride out the lows (much like any good property investor) and make big on the general trends which can only be up.
Sauce has talked about the 'buffer' of money that Ryman has from the lag between incoming and outgoing residents money, much like Insurance companies, however the big difference is that unlike with insurance Ryman never has the risk of a big payout. Hence this large pool of money acts like a huge cushion for Ryman. In fact, arguably I think a property downturn could actually be beneficial in the long-run. The cash reserves would allow them to keep buying land at a cheaper cost and invariably expand their villages at a much faster rate to keep up with demand. I think that it is this very unique cashflow model which forms the core of Ryman. And it looks like the demand side is not going to be a problem. Only today I read an article about Ryman's latest Village opening today and expected to reach capacity by the end of the year. Good sign of the future to come.

This begs the question that surely Metlifecare should be doing far better as they are sharing many of the advantages of the industry like Ryman. That beats me, Sauce has attributed some of this down to operational and managerial issues. I think the big difference with Ryman is the scale, to reach that level of cashflow requires a certain size (just like how insurance only works with a large number of insuree's) which I don't think Metlifecare has. I guess thats why the recent merger commotion has me thinking...

I don't think Sauce has the rose-tinted glasses on, it's just faith in a highly unique cashflow model and also what I hear is a excellent business operational model (which I would admit I know not much about- at least compared to Sauce who seems to have done his homework and more)

Cheers

[Sauce]

This begs the question that surely Metlifecare should be doing far better as they are sharing many of the advantages of the industry like Ryman. That beats me, Sauce has attributed some of this down to operational and managerial issues. I think the big difference with Ryman is the scale, to reach that level of cashflow requires a certain size (just like how insurance only works with a large number of insuree's) which I don't think Metlifecare has. I guess thats why the recent merger commotion has me thinking...


Some good thoughts there Rocketman11. I love the term "cash cushion" and I like your point that it won't ever require a sudden payout like insurance companies float. Additionally, RYM know exactly where they can safely invest the residents funds at very high returns, which further grows the Cash Cushion. They don't requiring buffett-like skills to get a good return on it, for instance.

Regarding Metlifecare: Yes, Metlifecare should be doing significantly better than they are. It is mostly an issue of execution.

Cheers

[mamos]

Sauce,

At a MET presentation I attended recently the CEO said that retirees have a tendency to go to a retirement village that is in the vicinity of where they lived prior as this is most likely where their friends would be too, rather than have a preference for a particular operator of a village.

Also when a relative of mine recently purchased her RYM unit she was told of an increase in the weekly living expenses to ~$150 said to be occurring soon at RYM villages which she could avoid if she settled before that became effective.

Cheers

[CJ]

At a MET presentation I attended recently the CEO said that retirees have a tendency to go to a retirement village that is in the vicinity of where they lived prior as this is most likely where their friends would be too, rather than have a preference for a particular operator of a village.

Also when a relative of mine recently purchased her RYM unit she was told of an increase in the weekly living expenses to ~$150 said to be occurring soon at RYM villages which she could avoid if she settled before that became effective.I would have thought location was a bigger factor than brand as well, though cost is a factor which is determined by brand.

Increased weekly costs to ~$150 - from what though?

[Sauce]

At a MET presentation I attended recently the CEO said that retirees have a tendency to go to a retirement village that is in the vicinity of where they lived prior as this is most likely where their friends would be too, rather than have a preference for a particular operator of a village.

Hi Mamos, good to hear from you.

That is absolutely correct. The villages have a very defined "catchment area" That's why location choice is so important. Among other things you want a favorable mix of aging demographics, good house prices, and access to local amenities.

But that doesn't really mean anything if the village is overpriced, is in a poorly chosen location, is not managed well, or has an below average reputation. There are many other factors in the decision making, and the decision making is often a family one.


Also when a relative of mine recently purchased her RYM unit she was told of an increase in the weekly living expenses to ~$150 said to be occurring soon at RYM villages which she could avoid if she settled before that became effective.


That's because RYM include a promise never to raise prices on any existing tenants. So if there is a price rise - in cost of unit, or weekly fees - it only effects incoming residents.

Sounds like the salesperson was doing their job well also, as that would provide some impetus wouldn't it!

Cheers

Sauce

P.s. You have reminded me I found a document you might find interesting, related to those finance concepts we discussed some time ago - I have been meaning to email to you - will dig it up.

[Sauce]

Increased weekly costs to ~$150 - from what though?

Hi CJ

RYM charge a weekly fee as a contribution to village running costs.

In the accounts it is lumped in with the care fees

Cheers

[Sauce]

Oh sorry you mean from what prior level...

[mamos]

Oh sorry you mean from what prior level...

I thought it was $100 previously.

[CJ]

I thought it was $100 previously.Thanks - $100 to $150 is a significant jump. If it was just $5 (ie. inflation) then not such an issue. Numbers are meaningless without perspective.

[ENP]

It's trading at approx 15x earnings which is relatively high for RYM taking into account since I've been watching the stock.

I'll be buying again when RYM is not considered the "market darling" and it is a bit cheaper relative to the value of the company. I'm also a bit concerned about its reduced return on equity and assets and also its profit margins.

It sure has had a great run as of late though.

From a potential residents point of view. What makes RYM different? Why not Metlifecare? Summerset? From an investors point of view is one thing but from a consumers, I'm not one for RYM, so really, what do you all think makes it different?

[777]

Half a million went through just before midday. Perhaps part of an order by someone taking a reasonable sized position in the company.

[percy]

It's trading at approx 15x earnings which is relatively high for RYM taking into account since I've been watching the stock.

I'll be buying again when RYM is not considered the "market darling" and it is a bit cheaper relative to the value of the company. I'm also a bit concerned about its reduced return on equity and assets and also its profit margins.

It sure has had a great run as of late though.

From a potential residents point of view. What makes RYM different? Why not Metlifecare? Summerset? From an investors point of view is one thing but from a consumers, I'm not one for RYM, so really, what do you all think makes it different?

Success;putting residents welfare,security,safety,peace of mind, and happiness first.
ie give people what they want,and you will get what you want.

[percy]

Insider buying alert - Ryman's Chairman, David Kerr, has just declared around $100,000 of Ryman shares, in one transaction, two days ago.

https://www.nzx.com/companies/RYM000000/announcements/225071

That is what I call a vote of confidence.

At the last AGM I went to David Kerr said "it is with a sense of pride I come here to The Ngaio Marsh village, as my mother lives here."

[percy]

Percy, you going to Tauranga on the 31st?

No unfortunately.

[Fudo_Myou]

In terms of their balance sheet, they have practically no long term debt (any debt they have is for village funding, and they practically pay it back after village completion).

I've been having a look through their annual reports, and I've noticed the miniscule long-term debt. But what has been perplexing me are the current assets and current liabilities figures. How do you have $1billion of current liabilities and $95million of current assets (with only $2.77m in the bank)? Do they fund building with short-term debt and pay it off with up-front sales proceeds?

[percy]

I've been having a look through their annual reports, and I've noticed the miniscule long-term debt. But what has been perplexing me are the current assets and current liabilities figures. How do you have $1billion of current liabilities and $95million of current assets (with only $2.77m in the bank)? Do they fund building with short-term debt and pay it off with up-front sales proceeds?

From page 20 this years [2012]annual report.
Assets.
Cash and cash equivalents $ 2,771,000
Trade and other receivables $ 91,786,000
Liabilities.
Trade and other payables $50,485,000
Employee entitlements $7,436,000.
To better understand liability of occupancy advances and Rymans balance sheet, look at Sauces and Snoopy's discussion on sharetrader thread;owner earnings vs free cash flow.

[CJ]

I've been having a look through their annual reports, and I've noticed the miniscule long-term debt. But what has been perplexing me are the current assets and current liabilities figures. How do you have $1billion of current liabilities and $95million of current assets (with only $2.77m in the bank)? Do they fund building with short-term debt and pay it off with up-front sales proceeds?I havne't looked at the accounts to answer your question but I think you need to understand the funding model of retirement villages. ie. person moves in and pays occupancy advanced which has to be repaid when they "depart". There is a service free paid annual for a fixed number of years 3-7 depending on operator which is not paid per se by the occupant but withheld from the repayment of the occupation advance.

[_Michael]

I've been having a look through their annual reports, and I've noticed the miniscule long-term debt. But what has been perplexing me are the current assets and current liabilities figures. How do you have $1billion of current liabilities and $95million of current assets (with only $2.77m in the bank)? Do they fund building with short-term debt and pay it off with up-front sales proceeds?

Am pretty sure the high liabilities number just reflects the occupancy advances...

I.e. they need to buy the properties back off the occupants (once they die or decide to sell) therefore the properties with occupancy in them sit as a liability

When they buy the property back it becomes an asset.... you need to look at the two lines together (the liability they need to pay occupant less the total value of all the properties..)

[_Michael]

Sorry just realised someone already answered the question


Am pretty sure the high liabilities number just reflects the occupancy advances...

I.e. they need to buy the properties back off the occupants (once they die or decide to sell) therefore the properties with occupancy in them sit as a liability

When they buy the property back it becomes an asset.... you need to look at the two lines together (the liability they need to pay occupant less the total value of all the properties..)

[scamper]

Am pretty sure that it is also the case that the apartments lose for 4% a year for a maximum of five years, so the company buys back at 20% less that it was paid.
The company also does not have to pay the departees (or the estate) for up to 6 months after the vacancy date.
This seems a very good business scheme, but not totally super for people needing to leave.

[CJ]

Am pretty sure that it is also the case that the apartments lose for 4% a year for a maximum of five years, so the company buys back at 20% less that it was paid. and then resells them for a higher amount (based on house prices increasing).

The company also does not have to pay the departees (or the estate) for up to 6 months after the vacancy dateTechncially I don't think they have to repay till they have resold, so give the comment above, it they never go into a negative cash position on any unit once constructed.

The only issue is where a resident ends up staying for a long time as the fee is capped at 20% so no more earned after 5 years (industry average is about 7years for a village unit from memory and shorter for the care units). Note: each villag/operator is different so it may be 5 years at 4%, 4 years at 5%, 3 years at 7% but normally in the 20 - 25% range in a period shorter than the average.

[percy]

[QUOTE=CJ;377792.
Techncially I don't think they have to repay till they have resold, so give the comment above, it they never go into a negative cash position on any unit once constructed.

Not sure if this is helpful? My mother's unit in a Buderim [Australia] retirement village remained unsold five months after my mother's death.They apologised to my brother about the slow progress in achieving a sale.He replied he was unconcerned as per her conract "the village had to payout should the unit remain unsold 6 months after her death".Appeared they had not read their own contract.
I am sorry I do not know RYM terms.

[Snow Leopard]

I am sure that scamper is correct and that Ryman pay out by the end of six months.

I believe that so far they have always resold within the time-frame.

best wishes
Paper Tiger

[CJ]

I am sure that scamper is correct and that Ryman pay out by the end of six months.

I believe that so far they have always resold within the time-frame.I read countless occupation licenses a couple of years ago from a number of different providers - most of them didn't have to pay out till they resold. Cant remember which and I think normally they would payout regardless as it helps from a marketing perspective to point to that past action to get new residents over the line, especially if their kids are meddling as they see their inheritance disappearing.

[Snow Leopard]

Here under the Ryman Peace Of Mind Guarantees (http://www.rymanhealthcare.co.nz/the-ryman-difference/peace-of-mind-guarantees)

'7. Repayment ProtectionIt is standard practice for retirement villages to repay your occupancy advance when the unit has been on-sold. However you will want an assurance that in the event the on-sale is delayed for some reason you will be repaid

."We guarantee that if the new resident has not settled within six months of you vacating your unit, then we will pay you interest on your occupancy advance until it is paid in full."

This gives us an incentive to on-sell your unit and repay you promptly. Did you know that in over twenty years the longest time a Ryman resident has ever waited is six months to be repaid their occupancy advance?'

best wishes
Paper Tiger