RYM - Ryman Healthcare

[Snoopy]

Here is my 7 year dividend discount model. I value RYM at $4.37 P/E of 15.98. I aim to make 15% after tax, so valuation reflects this. I forecast EPS growth over the 7 years of 10.5% per year and valuation of 19 P/E in year 7. I forecast the current dividend payout ratio of 37% to continue along the 7 years.

						19
	1.15
	1.105
year	eps	div	price+div	price	sum div	compounding
0	27.35	10.12	529.77	519.65	10.12	437.00	1	15.98
1	30.22	11.18	595.51	574.21	21.30	502.55	1
2	33.40	12.36	668.16	634.51	33.66	577.93	1
3	36.90	13.65	748.44	701.13	47.31	664.62	1
4	40.78	15.09	837.15	774.75	62.40	764.32	1
5	45.06	16.67	935.17	856.10	79.07	878.96	1
6	49.79	18.42	1043.48	945.99	97.49	1010.81	1
7	55.02	20.36	1163.16	1045.31	117.85	1162.43	1
8	60.79	22.49	1285.29	1155.07	130.22	1336.79	FALSE
9	67.18	24.86	1420.25	1276.35	143.90	1537.31	FALSE
10	74.23	27.47	1569.38	1410.37	159.00	1767.91	FALSE
	Buy below
	$4.37
	15.98 PE

B2E, good on you for having a go at valuing Ryman. I tried myself a few years ago, then decided it was too hard and went onto other pastures. I was following the axiom, do not invest in what you do not fully understand. A couple of things have stuck in my mind from that time though.

1/ PROJECTED RATE OF RETURN: You say you are after a 15% compounding return to fulfill your margin of investment safety. I put it to you that having one figure like that for all of your investments may not be the way to go. IMO some investments are naturally 'safer' than others. I tend to invest quite a bit in quasi utilities and frankly if I struck rigidly to a 15% rate of return criterion, I would probably never invest. Take something like power generation and power retailing for example. Everybody needs the stuff, so you know the demand will never collapse or be completely outmoded by technology. So to me a 15% total ROI is just very unlikely for such a 'stable' industry. I put stable in quotation marks because of the labour/green single buyer energy policy which is currently putting pressure on this sector, but which I see as an investment opportunity. Ryman likewise has such a well developed business model, that I would regard that too as 12% ROI target.

2/ CAPTURING THE PROPERTY RETURNS: IIRC, Ryman captures all of the occupier's unit capital gains for shareholders. These do not flow through to profits in the usual way, but nevertheless add to the company's balance sheet. That in turn provides more equity that can be used to develop more villages over and above any new equity gained via retained earnings. I think you need to find some way to capture that effect in your valuation model.

SNOOPY

[muss1]

I agree with others discussing ideas.

I just come up with my own valuations rather than following others.

Let's forget this because it isn't achieving anything. I am not following others valuations, I am gauging sentiment towards the inputs.

Ryman is and will most likely be priced at a premium. Even in a correction it'll probably still be at a premium (though I hope I'm wrong).

Do people like Ryman enough to accept this risk (at its least during a correction)? This question stands no matter what you value Ryman at.

[bobxia]

Hi born2invest, I just wonder if you factor the probability of Ryman replicating its success story in OZ into your model, how much it’s the share price worth?
Starting from Melbourne, there are over 4 million people there. In fact, the aging population in the city is almost the same as the whole New Zealand, and also the forecasted growth of aging population is pretty much the same as New Zealand. If Ryman’s model works in OZ, just Melbourne itself is good enough to double the share price, don’t you agree?
Given the tracking record of Ryman, don’t you have the confidence that there’s a good chance they will crack the OZ market?
If Wheelers Hill really works, Ryman will not just build another one RV, they will start building another 10 or 20. The beauty of their model is that all the RVs are self-funded. Plus, Ryman is generating $100mio profit, which can be used to pre-fund any project.
There’s a very high correlation between the share price and the building rate. So as long as Ryman keep building RVs, it’s hard to see why the share price should stop raising.

[Vaygor1]

...There’s a very high correlation between the share price and the building rate. So as long as Ryman keep building RVs, it’s hard to see why the share price should stop raising.

..... and if they did stop building, imagine the dividend stream.... all that annual construction and land acquisition money paid out on top of what they currently distribute.

[Vaygor1]

Ryman themselves have stated that they're targeting 15% growth for the forseeable future.

..... Ryman will be $7.50 well before next May, possibly even today LOL and $8.50 well before May 2015, in my opinion.

Correct so far there Roger. Closed yesterday at $7.57 and $7.55 the day before that. 6 monthly result out in 2 weeks. It will be another record 1/2 year result I am sure.

[Vaygor1]

Well, seeing as I'm the only one left commenting on this totally boring share, it closed up 17 cents at $7.77 today.

Many years ago, a friend of mine dreamed he saw a huge number 7 over a racecourse. The next morning he realised that it was the 7th day of July, ,the 7th month and the horse races were on that afternoon, so he put $77 on horse No 7 in race 7... sure enough, it came 7th.

But anyway... why has MorningDump still got a SELL recommendation for Ryman with a valuation at $5.00? You'd think they would have at least altered it to a REDUCE by now, especially with another record-breaking half year result announcement due out in just over 2 weeks.

[percy]

I can not speak for Morningstar,however I think maybe the SP has already built in two or three years of success in Australia,when we have not been updated on their first Australian village's sales/success.Maybe Morningstar are warning that the SP looks to have got ahead of its self?.
Trying to work out fair value for Ryman is very difficult.Fantastic company in the right sector means a lot of people are buying into the successful story.

[gv1]

Great stock T but in the mean time something else will be sky rocketing and long term another.

[percy]

How long have they had that "sell" recommendation though? I thought it had been quite a while. From memory they have had a target price which has been consistently low relative the actual SP of RYM. You might be right Percy in terms of risks associated with OZ and how much future is priced into the current SP but for me I don't feel Morningstar has a very good track record with RYM and therefore maybe not the most credible when it comes to RYM. Stand to be corrected though, anyone else got a better recollection than me as to how good Morningstar's research has been on RYM? I don't take a heap of notice of them to be honest.

I agree with you, Morningstar's track record with Ryman has always,as far as I can remember has been wrong.
The only person/analyst who has been right has been Sauce here on sharetrader,and he has not posted his up to date valuation for a long time.
I myself do not have a clue what is fair value for Ryman at present,and that concerns me.

[gv1]

I meant Sum and met- possibly long term