RYM - Ryman Healthcare

[Vaygor1]

You should never confuse Baa Baa the messenger with Babar the Elephant:

... but no problems in receiving messages from within the "Baa Baa brewhouse - have you any beer?" in Brookshire, just west of Houston.

Baa Baa Brewhouse.jpg

http://www.baabaabrewhouse.com/


... a likely spot (or should that be stripe) where one can sense the rumblings of the Tiger.

Tiger Rum.jpg

[Vaygor1]

Hi mate,

Thanks for sharing your perspective. Is Brandon park problematic in much the same way as the Boulcott site is for SUM ? Could it be years before they get the required consents ?

Hi Roger. My knowledge of SUM's Boulcott issues are not as in-depth as my knowledge of RYM's Brandon Park issues, but the causal factors behind the delays on each of these respective sites appears to be quite different.

My current perception (and it is only a perception) is that SUM are offside with the locals and possibly with the Hutt City Council... more Council grooming and community engagement required next time around maybe?.. or a concession here of there possibly?

I haven't heard of any such conflict between Victoria's City Of Monash and RYM nor anything out of the ordinary between the locals around Brandon Park and RYM's plan for the site. The holdup I believe is due to Victoria's Federal Authorities dictating terms and process on a number of sites under Monash's jurisdiction, one of them being Brandon Park where RYM is the casualty. Monash feels (possibly rightfully) undermined by the Victorian Federal Government and is reacting accordingly as they (Monash) have in their mind some major principles that need to be upheld, and are stonewalling on all affected sites including Brandon Park to prove their point.

[winner69]

... and here is a definitive correlation of underlying profit per share vs share price:

Attachment 8465

Roger and Winner are correct (as can be seen) re the stagnating share price from 2013 to now, and the SP could still do what it did in 2009... or maybe it could do what it did in 2013.
Again, the forecast is based on an announced (in May 2017) Underlying Profit of $183 million for the Year End 31-Mar-2017, and assumes a non-bull non-bear market.

Great chart

I hope many appreciate how beautiful it is - from many perspectives

[Beagle]

Great chart

I hope many appreciate how beautiful it is - from many perspectives

I know we both do Very good discussion on this one. From a fundamental perspective I think after a long time of being overpriced its now fair value and there's no question regarding their pedigree and the companies ability to create wealth for shareholders over the long run which in my view makes it an ideal retirement stock in more ways than one especially for this hound with 10 - 15 years to go before retirement. I'll keep a close eye on the technical's now and am happy to wait for a clear entry signal. Currently the 100 day moving average appears to be $9.22.

[BlackPeter]

Hmm, I've been earlier this week on John Ryders excellent presentation in Christchurch and learned next to other things that companies where the public have low expectations ("dogs of the DOW" - he talked about boring regular income earners) regularly outperform the index.

Lets keep it that way and please lets not talk too much about RYM ... and definitely keep the expectations low ... at the end it is an incredible boring stock - yawn!

There are so many more exiting threads around: PEB, WYN, AIR, ... shall we change the subject?

Discl: holding (RYM);

[Beagle]

Its certainly been boring for the last two and a half years

Another thing to factor into the equation with all property stocks. http://www.msn.com/en-nz/news/nation...cid=spartandhp

Ryman have a lot of facilities in Christchurch. They did okay with previous earthquakes there but who knows what's around the corner ?

[BlackPeter]

Its certainly been boring for the last two and a half years

True, this is the reason I only recently bought in .... I think its now their time again to lead the pack ...

Another thing to factor into the equation with all property stocks. http://www.msn.com/en-nz/news/nation...cid=spartandhp

Ryman have a lot of facilities in Christchurch. They did okay with previous earthquakes there but who knows what's around the corner ?

Well, I guess this (earthquakes or volcano eruptions) are risks you have everywhere in NZ - one, the other or both. Not sure, though whether I would see retirement villages in that regards as particularly threatened ... most of them are quite modern and not too many storey buildings ... and they either survived the 2010 earth quake or are now build to a much higher standard.

As well, yes - we are still waiting for the "big one" at the alpine fault, but given its distance to the town is this unlikely to be worse for Christchurch than what we felt in the recent quake. I am not aware of any damage (again - in Christchurch, obviously Culverden, Kaikoura, Hamner Springs and northward from there look different).

One last thing ... of the big three RYM has obviously the most diversified portfolio - i.e. any local event would hurt it less, than the other two.

But - what am I doing here ... RYM is obviously a bad and high risk company, not good to buy in. All these earthquakes in Melbourne, volcano eruptions in Canterbury and the lousy weather in Auckland ... nothing to see here - just move on, guys ... buy the other stocks and leave some more cheap RYM for me to pick up

[Beagle]

2013 100.2 / 84.1 = 19.1%
2014 118.2 / 100.2 = 18%
2015 136.3 / 118.2 = 15.3%
2016 157.7 / 136.3 = 15.7%
2017f 180 / 157.7 = 14%

The reason behind the reduction in growth rate from 18%pa down to an abysmal 16%pa over 4 years (if one can call that a trend)... Vaygor1

Sorry mate but I have to pull you up on that point. While you've estimated $183m to arrive at 16% growth, (that looks more than just a little convenient to me), and I would reiterate that the company's official forecast is $175m - $185m. I believe the normal convention is one takes the mid point of that forecast range as to take any other approach shows up one's natural bias. Obviously the mid point is the one where one is just as likely to be wrong to the upside as to the downside. I am happy with my numbers and believe my approach of taking the mid point is technically correct and therefore in my view there is a clear trend downward in underlying profit growth over the last few years.

Further, having thought about this a lot today, if the company had of been able to continue growing at ~ 19% as they did in 2013 I think we would have quite a different share price today.
The decline in profit growth has occurred contemporaneously with a lengthy stagnant period where the share price has materially underperformed the market. Coincidence or the market accurately reflecting the declining growth rate...
For my money, yes the SP was definitely overpriced as I clearly articulated in early 2014 but the slowing growth rate doesn't help that's for sure.

I think they need to demonstrate they can materially lift the build rate before the SP can get above $10. Based on their plans I see the build rate doesn't lift materially until FY18, assuming they get the necessary consents. The risk in my view is that we could be in for a further period of price stagnation until such time as they can prove they can drive their Australian operation harder. 3 1/2 years of the SP ostensibly doing nothing may test some shareholders loyalty although with your average entry price I doubt you will be too concerned. That said people looking to buy back in at ~ $8.60 could well find themselves a little frustrated over the next year or so, (the dividend yield is very low based on that entry price).

Interestingly we've seen a decent lift in SUM"s SP this year from about $4.00 when Norah left to $4.90 up 22.5% on the back of their 33% lift in their build rate this year. In my view there is no debate that SUM have grown underlying profit substantially more than RYM over the last 5 years and yet they are trading on a forecast multiple some 20% less. A current year PE for SUM, (keeping in mind their year is almost complete) of 19.8 doesn't make sense to me when RYM are trading on a June 17 PE of 23.4 times underlying earnings. Conclusion, SUM are really quite cheap, RYM fair value.
With RYM at $8.60 people are paying for perfection and by and large that's exactly what the company has delivered over a very long period of time but what if one year they didn't or what if they only achieved 11% profit growth this year ($175 / 157.7) which is within their guidance range and 10% in FY18 ?

[Vaygor1]

Sorry mate but I have to pull you up on that point... the company's official forecast is $175m - $185m. I believe the normal convention is one takes the mid point of that forecast range as to take any other approach shows up one's natural bias. Obviously the mid point is the one where one is just as likely to be wrong to the upside as to the downside....

And you are always welcome pull me up on any point Roger.

I took a closer look at RYM's growth rate of underlying profit. It is too short a term to just look at the last few years, so I adopted the 5-year & 10-year comparison method (one of Buffets methods I think) to get a more accurate picture.

Attachment 8477

So I do agree the growth for now appears to be slowing. But this could easily change over the medium term with demand for aged care now beginning to outstrip supply in NZ, and in increased margins as inflation ripples its way through RYM's resales figures.

Not disagreeing at all with your mid-point method of analysing the $175M to $185M guidance, however I use $183M as my forecast for the following reasons:

• RYM have been very conservative in their guidance in the past, a trait I wish them to maintain.
• I have analysed why RYM gave the $175M to $185M range and think they will easily come in at the upper quartile.
• I have recently wagered a 15% minimum increase in RYM's UP for this financial year and this equates to $157.7M x 1.15 = just over $181M so this figure is my minimum.
• For the purpose of forecasting only (with no real need to add conservatism for the purpose of making a prudent investment decision) I am using what I believe to be a realistic estimate given my past experiences with RYM.
• Track record. Last year I predicted an Underlying Profit of $158M and a dividend of 8.4 or 8.5 cents per share. http://www.sharetrader.co.nz/showthr...l=1#post619718 . Not bad for a result of $157.7M with 8.5c divvy.

The decline in profit growth has occurred contemporaneously with a lengthy stagnant period where the share price has materially underperformed the market. Coincidence or the market accurately reflecting the declining growth rate...

Possibly, but I believe the stagnation is 90% due to the Shareprice getting too far ahead of itself in 2013 as clearly seen...

Attachment 8478


... and the fact RYM should have moved by now (imho). RYM has already traded at over $9.70 in June, July, and August this year. But as we all know the Market does what the Market does, and anything can happen.

Interestingly we've seen a decent lift in SUM"s SP this year from about $4.00 when Norah left to $4.90 up 22.5% on the back of their 33% lift in their build rate this year. ..... Conclusion, SUM are really quite cheap, RYM fair value.

Even at $5 where SUM traded this morning, apples-with-apples it's probably a better buy than RYM at the moment, but as you know I still hold some reservations about SUM's reporting due to potential cultural overhang from it's past Directorship.

... what if one year ... they only achieved 11% profit growth this year ($175 / 157.7) which is within their guidance range and 10% in FY18 ?

Well the answer to that lies in the past when in 2009 RYM's growth was only 5% (refer top chart above). The market drove the Share Price down 35% and those that bought did so for a song. This too is reflected in the 2009 point in the loglog chart above.

[OldGuy]

Interesting chart, vaygor. To me, the take away message from that is that it has been 10 years since RYM achieved SUM's current rate of earnings growth. This solidifies my belief that SUM will continue to massively outperform RYM in terms of earnings growth for at least the next 5 years. When the market wakes up and realises this, the potential for SUM's SP to skyrocket are huge.