Originally Posted by
Maverick
With the annual result coming up soon I'm willing to share my expectations and what I'm looking for in case others are interested. With 4 years of data now, things are getting better understood and more predictable. There is a lot of info and my opinions in this post so I hope there is some useful stuff to you here.
Let's go….
I no longer consider the underlying profit as the main yard stick as I have since learned that this single measure, at this development stage of the pipeline, is too crude. Overall It is an amalgamation of the 3 separate OCA income streams ;Care, Village and New Build margins. These 3 income strands are evolving at different paces which need to be treated separately to see a clearer picture.
As an example let's use the recent 1HY21 profits ;
Care (+16% PCP)
Village (+20% PCP)
New build profits (-9% PCP) down as expected due to location of deliveries.
As a result the 2 most important longer term profit engines (Care and especially Village) are growing nicely but are masked by the temporarily falling New Build profit resulting in a flat overall Underlying Profit. (-1.5% PCP)
Note that it takes some personal effort to manually separate out the New Build margin profit from the rest of the Village profit as OCA reports these 2 strands under the one total of “Village”.
These key 3 sets of numbers within the P+L need to be viewed individually, they are far more important than the underlying profit itself, at least for now.
These numbers are telling the story of how the model is functioning.
Let's face it, 3 years so far of about $50m underlying profit and probably another ~$50m FY21 does not look good... but….provided OCA continue on its current path, significant and orderly profit growth will almost magically start appearing on the bottom line next 1HY22 onwards. Basically the continuing strong growth in Care and Village profits are on the cusp of overwhelming the currently lagging New Build profit.
Here are the key figures that I am expecting which will verify that OCA is on track. These numbers are annualized and compared to FY20;
Underlying profit ; c.$49-$52m. Could actually be a little higher as property sales /prices might surprise to the upside.*
Care profit; $23.3m (up 21% from $19.2m). This solid upturn is essential as we have already passed the point of “care” inflection and I expect to see continued linear growth from here. Essentially proves the new concept of breaking down old rest homes and rebuilding with the modern “ cares suites” model is working and becoming increasingly profitable.
This increase needs to be on track otherwise it will validate Beagles concerns of rampant care cost ever rising which will continue to nullify the other care gains.
Care DMF; $12m (up 54% from $7.8m). A very important sub-number within `Care profit`. It's vital to care profit to continue seeing this number grow strongly as it is the engine room for future “Care” growth.
Village DMF; 28.6m (up33% from $21.4m). This is essentially where 75% of the long term profit gains for OCA will come from (not the “care” stuff like many might think). This is the single most important number in this FY result.
New Sales; $32m (down 8% from $34.3m). The falling margins are expected and not an issue as the current offerings are mostly outside Auckland for the next few years.
Resales; $20.4 m (up 76 % from $11.5m) .A high % rise this FY because of covid causing a low base in FY20 . While this resales figure is important, it is also very predictable as it is mostly a combo of the last 5-7 years of house price rises (OCA itemises this for us each FY as “embedded value” ) and client churn.So kinda hard to get this wrong as its a result of historical stuff already known.
Personally, I will be particularly interested in the apartment resale prices after last HY sales prices being surprisingly low. I have accepted for now that it's due the small volume sales numbers (40) temporarily skewing the results to this low price with greater/lumpy sales in low value areas, lets see….
As long as these numbers above are somewhere in the ballpark , most especially village DMFs, then this will underscore the growth that's already underway (with the exception of “new sales” which I expect to continue to moderately fall further next FY, the a strong uptick thereafter when their Auckland offerings get started )then the FY22 is set up for an underlying profit of around $60-$65m, thats up 30% and the year after that , and FY23 is looking similar.
The next 2 x FY`s will be when the large bottom line profit growth (~30%) will be followed by more moderate growth after that (~15-20%). Interestingly, just as the other 3 analysts are also expecting.
Unless these new numbers disappoint but I can't see how they can, I maintain the SP should be just shy of $2 this time next year.