Originally Posted by
Maverick
Thanks for posting Greekwatchdog. The snippet about Forsyth predicting “a 1% change in unit price growth impacts sector annuity EBITDA by c.1%.” makes perfect logical sense. Of course I've obviously spent this week considering and reworking the implications and various scenarios for OCA`s model when considering a possible HPI fall.
I've already mentioned the 3 income streams OCA has;
Care Profit- this tax change affects nothing.
New build margins- This may be affected in the short term should new build sale prices fall but then country wide supply will shut off until the market rebalances and it's worth building again. So long term, no worries. Besides , new build prices are set by general wages not landlords.
DMF profit (this is the big one also at the core of OCAs growth strategy.) If one agrees with Forsyth, I certainly do, their correlation of 1% HPI fall = 1% fall in EBITDA then should a theoretical fall of say 20% HPI happen (you decide for yourself) then this will take years to fully materialise on the bottom line. That would have only unwound the current 20% HPI gain which has not yet even started to materialise yet as it also needs years to work through. These changes are realized by unit churn and backed up by charting Summersets performance during some sizable HPI rises over the last decade.
In this case of HPI possibly falling 20% from here the impact on the bottom line would be neutral and won't even cause a noticeable ripple to their bottom line.
OCA`s model is certainly enhanced by but not dependent on HPI increases. I know most believe retirement stocks are dependent on HPI rises but they simply are not. Consider RYM or SUM and their sizable CAGRs. The HPI rises, over whatever period you like, have always been significantly lower than the annual profit gains. Profit has always been mostly about the ORA`s and it seems people will never get that.
While HPI rises offer a great tailwind they are only a percentage of the story. While the HPI run has been incredibly rewarding for the sector, this logically had to end at some point.
HPI levelling or falling back from the unsustainable rise this year was inevitable in my opinion and expected.
This is not a game changer for me as a long term OCA holder. I personally have only ever factored in a HPI +2.5% long term anyway- including this year. Don't overlook that interest rate rises are still yet to come too which IMO is really what is going to hurt the HPI.
Onto the acquisition, remember that old topic? It seems logical. It's not OCAs normal style of purchase but where else can they buy old villages in high end areas any more? I suspect all the low hanging fruit is well gone by now. This is close enough to ticking most of the boxes for them and indicates their willingness to extend the pipeline. This bodes well for shareholders looking for growth 5-6 years out from here which is when they have indicated they will start the value add construction stuff to these purchases.
Once the new supply of $100m of fresh shares settles in and the current negative retirement sentiment inevitably fades once good numbers keep rolling through things will be back to upwards , with some catchup now to boot. ( I do acknowledge market sentiment is a powerful force to the share price in the interim).
While my confidence remains in the science of all this , the sentiment of the sector is anybody's guess and my own expectation is that it will only change from here when good numbers prove the story…..its already started at 1HY21 but still quite embedded to see, but the analysts do now. The bottom line numbers should get really nice for most who don't do the deep and very difficult analyst stuff on this company will see 1HY22 , about 8 months from now.
Disc, I'm a long term investor so any fancy ideas of getting out and back in before then is not something I'm interested in.