RYM - Ryman Healthcare

[winner69]

I started this $6.50 thing by stating that's where I saw it at fair value to me a little while back and stand by that view.

In my opinion many people, myself included have a required rate of return in equities that fairly rewards them for the specific risk of a stock and the market risk. Lets suppose for the sake of this argument that a typical expected return on an equity investment is 15%. Lets also suppose that RYM achieve their medium term stated goal of 15% EPS growth and we know their dividend yield is 1.4%.

I'd be expecting a 13.6% improvement in the SP to compensate me for the equity risk and woefully low dividend yield. The stocks trailing PE had blown out to 35 times last years underlying EPS results when I made that comment a while ago and in my view this isn't supported by a 15% growth rate in EPS.

My contention is that a PE in the mid-late twenties is more appropriate with a 15% growth rate going forward which is supportive of a price of approx. $6.50 as at about 2 months ago.

I think its more likely that we will see a lengthy pause in the SP at around current level's while we wait for growth to catch up. If the stock price does nothing for say 18 months in effect shareholders only get a 1.4% dividend yield and in my case, this undershoots my required rate of return by 13.6%. Therefore I am indifferent to paying $6.50 now or about $8 in 18 months or so.

Look at it another way, the stock price is up 125% in the last two years and the EPS growth has been 40%. Ask yourself whether the price can keep going up unsupported by EPS growth ?
PE expansion cannot go on forever and in my opinion is highly likely we'll get PE contraction either through continuing price correction of lengthy SP stagnation.

History shows that whenever RYM gets to elevated multiples the next 3-5 year returns are generally negative (a post of some months ago giving the details for which I got some red marks)

Your day will come ....even voyager will run out money at $7 to give us the opportunity at $6.50 and we will make heaps of money (again)

(and for couta - during this turmoil RYM will still build heaps and make heaps of money)

[Beagle]

History shows that whenever RYM gets to elevated multiples the next 3-5 year returns are generally negative (a post of some months ago giving the details for which I got some red marks)

Your day will come ....even voyager will run out money at $7 to give us the opportunity at $6.50 and we will make heaps of money (again)

(and for couta - during this turmoil RYM will still build heaps and make heaps of money)

Yeah mate we are definitely on the same page with this one. People who keep citing the strong demographic tailwinds in this sector forget that this has been trumpeted from every hilltop and frankly you'd have to be living under a rock, (probably on the moon), to have not already heard the "favourable demographics" message many times over which means its already fully priced in and then some. I'm out of this sector completely until common sense valuations start to prevail again.

[Vaygor1]

… Look at it another way, the stock price is up 125% in the last two years and the EPS growth has been 40%. Ask yourself whether the price can keep going up unsupported by EPS growth ?
PE expansion cannot go on forever and in my opinion is highly likely we'll get PE contraction either through continuing price correction of lengthy SP stagnation.

I know your view Roger. We have discussed it at length in the past. Not only that, I respect your viewpoint and in many ways hope you are right (via SP contraction or stagnation), for if you are it will afford me another opportunity to increase my RYM holding at even more of a bargain than exists today.

My view is that 2 years ago the stock price was undervalued. The 125% growth in SP is magnitudes smaller than the likes of speculative XRO and DIL have witnessed in recent times.

RYM's short term growth is a function of what they were doing 5-7 years ago regarding expansion. If you look back 5-7 years this was a time RYM took another leap up in build rate, resident numbers etc. Based on statistics those new residents back then are now 'moving on' (as we all will one day), and the gain in property prices upon resale of the occupation rights will become realised.

When I bought at a PE of 35 a long time back, the shares paid for themselves by way of earnings in 7 years given RYM's growth rate which is substantially the same today as it was back then.

You refer a lot to the dividend yield as a measure which is okay, but it is this retention of what would otherwise be payed out as dividends that fuels RYM's growth. Many companies over the years have paid zero dividends and retained every sent of their earnings every year with spectacular results in growth and share price.

As always, time will tell. We are all so much wiser after the event.

[Vaygor1]

Just looked back in the 5-7 year ago region for RYM and housing prices:


2007-2008 Sales of occupation rights jumped from 480 to 580. Increase of 21%
2006-2014 Median NZ house price moves from $300k to $425k. Increase of 42%

Build rate:

Attachment 6073

So by about now, new residents will be paying 42% more then RYM's current book value for the units being vacated. The number of resales should be up about 21% on last year. Then add to this the new sales occurring currently in Bruce McLaren and Wheelers Hill.

Is there demand for RYM's existing portfolio and future portfolio given the size of their land bank? Well, I think the scales are about to tip. If anything, RYM is late. Refer below from RYM 2011 results briefing.

Attachment 6074

To the best of my recall, I think Simon Challies stated quite recently that if RYM maintain their existing growth rate every year until 2040, their NZ market share will only be 18% so plenty of room for SUM, MET and potential new players like Oceania.

[percy]

In the next 10 to 20 years the number of people in NZ 65 and older is expected to be over 1,000,000.
May pay RYM,SUM and others to up the build rate yet again?

[Beagle]

In the next 10 to 20 years the number of people in NZ 65 and older is expected to be over 1,000,000.
May pay RYM,SUM and others to up the build rate yet again?

Yes mate but will we be here to see it in 20 years ?

Property Developer sees the market cooling.
http://www.stuff.co.nz/business/indu...day:dailybrief

Vaygor1 - I think the Reserve Bank are determined to cool the property market down and the market is starting to ask have we hit a peak with house prices and if so what does that mean that in the long run ? Are these Retirement village operators going to face declining profit margins on resale in the medium term ?
The market has had an exceptional run in Auckland. Are you coming back to N.Z. ?
Certainly if you look at it from an issue of affordability with the average house price in Auckland now ~ $700,000 you'd have to wonder. You've only got to get the slightest doubt on future growth on a PE of 35 and the market can correct quickly.
We're already down about 7-8% in Rym and SUM in the last 3 months.

[percy]

[QUOTE=Roger;495259]Yes mate but will we be here to see it in 20 years ?

I certainly will be.Older and bolder.!!!
However it did occur to me that the next ticket for retirement home operators to click could be funeral parlours.
"Total care,you never have to leave the village,ever." Don't know whether I would like my ashes around the rose garden,or overlooking the bowling green.

[winner69]

[QUOTE=percy;495266]

Yes mate but will we be here to see it in 20 years ?

I certainly will be.Older and bolder.!!!
However it did occur to me that the next ticket for retirement home operators to click could be funeral parlours.
"Total care,you never have to leave the village,ever." Don't know whether I would like my ashes around the rose garden,or overlooking the bowling green.

Seems a logical bolt on acquisition .... probably more profitable than care facilities

Cost for spreading ashes around the rose garden will be $200 - great money making idea here for the operators

[Winston001]

The Southland Times reports that there are are no vacancies for resthome residents.

http://www.stuff.co.nz/southland-tim...t-home-rentals

I'd guess this is not quite accurate because there are other rest homes, but PSS is the major player in the market.

[percy]

The Southland Times reports that there are are no vacancies for resthome residents.

http://www.stuff.co.nz/southland-tim...t-home-rentals

I'd guess this is not quite accurate because there are other rest homes, but PSS is the major player in the market.

Loved the comments from local Gun-Ho MP.!!!!