RYM - Ryman Healthcare

[Greekwatchdog]

For Bars take on it

Ryman Healthcare (RYM) downgraded its expectations for FY24 underlying earnings by -13% at the midpoint due to weak new sales volumes and weak resales margins. A silver lining is that net debt is expected to remain stable, likely due to lower capex. The relative weakness in new sales (still expected to be up ~+50% from the very weak first half, but down ~-10% versus 2H23) is not that surprising, in particular as it appears to be concentrated in a few villages where the main building is yet to be completed. It is, however, disappointing that it appears to have caught RYM off guard. The housing market has not deteriorated further since RYM communicated its 2H24 expectations in November 2023, and neither does RYM indicate any further delays to its main buildings. Over the last 18 to 24 months RYM's income statement new sales have disappointed, whilst its cash collection of new sales has improved from substantially below 100% to substantially above. This change has coincided with a shift in focus from underlying earnings to cash generation. We believe this change in focus is the right one but the transition is painful. We reiterate our OUTPERFORM rating with a reduced target price of NZ$8.25.
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NZX Code	RYM
Share price	NZ$4.88
Target price	NZ$8.25 (from 8.80)
Risk rating	Medium
C&ESG rating	C+
Market cap	NZ$3,356m
Avg daily turnover	659.4k (NZ$3,808k)

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Financials: Mar/	23A	24E	25E	26E
Rev (NZ$b)	0.927	0.954	1.059	1.159
NPAT* (NZ$m)	301.9	273.4	324.3	376.6
EPS* (NZc)	58.5	39.8	47.2	54.8
DPS (NZc)	8.8	0.0	0.0	16.4
Imputation (%)	0	0	0	0

*Based on normalised profits

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Valuation (x)	23A	24E	25E	26E
PE	8.3	12.3	10.3	8.9
EV/EBIT	16.7	18.7	15.9	14.0
EV/EBITDA	14.7	15.9	13.8	12.2
Price / NTA	0.7	0.6	0.6	0.5
Cash div yld (%)	1.8	0.0	0.0	3.4
Gross div yld (%)	1.8	0.0	0.0	3.4

What's changed?

• Earnings: FY24/FY25/FY26 underlying earnings reduced by -15%/-11%/-8% driven by lower new sales and resale gains
• Target price: Reduced to NZ$8.25 from NZ$8.80 due to lower annuity EBITDA estimates.

Midpoint of underlying earnings downgraded by -13%; net debt a positive, in particular relative to consensus


The two cited drivers of RYM's downgrade were: (1) slower-than-expected new sales, and (2) lower resale margins. New sales in 2H24 are still expected to be up ~+50% versus its very weak 1H24, but down ~-10% versus 2H23. New sales below prior expectations appears to be driven primarily by slow sales in a few villages where the main building is yet to be completed. Weaker resale margins is attributed to mix, but we suspect general market weakness has also played a part. RYM also stated FY24 net debt should be flat on 1H24, this was in-line with our prior expectations despite substantially lower new sales, likely driven by lower-than-expected capex. Cash flow breakeven over 2H24 bodes well for RYM's medium-term target of being free cash flow positive in FY25.

Accounting new sales below expectations but cash generation ahead — paying for old sins of early revenue recognition


RYM has a history of (very) early revenue recognition, at times recognising sales of units up to a year before cash settlement. After resetting the strategy, switching focus from underlying earnings to actual cash generation, the tables have completely turned. During FY21 and FY22 RYM collected ~85% of new sales in cash, but the last 18 months (reported) have seen RYM collect ~115% of recognised new sales revenue. While RYM's profit downgrade was disappointing, we suspect similar dynamics are at play during the current period. With a sales force now more focused on selling units out of inventory and settling for cash, and less focused on collecting fully refundable deposits, reported new sales could suffer while cash collections fare better.

[bull....]

Ouch, I've checked the share price performance of Ryman over the last three years. What an extraordinary destroyer of wealth this stock has been in that time if you have held it. From $15.70 a share on 12 March 2021 to $5.11 a share today at lunchtime. That's down 67.5%. That's got to hurt.

I have always viewed all of the retirement villages as first and foremost a play on property development and the real estate market. When house prices are rising the profits via revaluations will roll on in, because the villas, units, apartments, etc they get revalued upwards as well. But when the market turns or stalls they don't.

The fundamentals of the underlying business as a retirement village, rest home, hospital-level care provider, etc., are much less attractive and this has been evident in the financial returns that are published every year. This sector, particularly the rest homes and the hospitals is notoriously difficult to run at a profit, being as it is, largely dependent on Government subsidies. The government is never generous in this regard, more so in the coming years because basically, the Government is broke (thanks Labour).

As for the baby boom being the demographic to drive profits going forward. It's too early for that. About 1/4 to 1/3 of the baby boomers have yet to reach the age of 65, they are still working, well most of them are. None have yet turned 80. So it will be some years yet before that cohort of the population will be ready for retirement village living which in the main attractes those over the age of 75, and particularly 80.

yep agree totally.
I see the baby boomer demographic as a bell curve ie peak demand at some point followed by a big slump which translates to RV's Future value following the same bell curve.

[Toddy]

I'm not invested in RYM. But have exposure to the sector through Ift.

It's a pretty complex model and predicting demand is a mine field.

For instance, how many followers on here would cough up the cash to live in a retirement village ( for self or parents) and destroy the wealth from your hard work investing.

Me, never. My parents, no, in laws no.

[alokdhir]

I'm not invested in RYM. But have exposure to the sector through Ift.

It's a pretty complex model and predicting demand is a mine field.

For instance, how many followers on here would cough up the cash to live in a retirement village ( for self or parents) and destroy the wealth from your hard work investing.

Me, never. My parents, no, in laws no.

Many will ...as there comes a time when convenience and safety and quality of life etc takes precedence over accumulating more wealth

[Bjauck]

I'm not invested in RYM. But have exposure to the sector through Ift.

It's a pretty complex model and predicting demand is a mine field.

For instance, how many followers on here would cough up the cash to live in a retirement village ( for self or parents) and destroy the wealth from your hard work investing.

Me, never. My parents, no, in laws no.

I am definitely thinking of it for ourselves when I am eligible. A lock up and leave so that we can travel health permitting.

A lot of the value of my house has come from artificially restricted land supply, government policy, and reserve bank guaranteed inflation and realistically not from my hard work. So I think I would be happy to let the village take over some of the hassles of home ownership and maintenance in exchange for a management fee. How realistic is to expect the super-inflationary (in excess of wage increases) of house price increases of the past decades to continue for the next decades? Even for NZ prices, there will be a limit.

[Rawz]

I'm not invested in RYM. But have exposure to the sector through Ift.

It's a pretty complex model and predicting demand is a mine field.

For instance, how many followers on here would cough up the cash to live in a retirement village ( for self or parents) and destroy the wealth from your hard work investing.

Me, never. My parents, no, in laws no.

I agree. Although i might send the in laws to one looool

[Bjauck]

I agree. Although i might send the in laws to one looool

Be careful for what you want. Once they move in, They may have more time to come and visit more frequently!

[Leemsip]

yep agree totally.
I see the baby boomer demographic as a bell curve ie peak demand at some point followed by a big slump which translates to RV's Future value following the same bell curve.

This isnt the case bull. Whole population is older for longer, even when the boomers die out. Population is permanently older as the 80-100 cohort gets huge.

[Toddy]

I recall one of the stats from a documentary I watched on Netflix about the lingtivity of life.

Once you move into a retirement village then you statistically you don'tive as long. It was all based around keeping active if you stay in your own place.

I had never really thought about it before.

[winner69]

I recall one of the stats from a documentary I watched on Netflix about the lingtivity of life.

Once you move into a retirement village then you statistically you don'tive as long. It was all based around keeping active if you stay in your own place.

I had never really thought about it before.

Villages need to keep turnover up eh ….recycle cash faster