MET - Metlifecare - one for the fundies?

[Bjauck]

I think we are reading into it too much. Generally a change in law is secondary to a circumstance anyway. If going by that logic a change in law can always easily be used as a scapegoat to trigger a MAC by looking at what caused the change in law. End of the day regardless of how, the law was changed and I’d think that’s what it comes down to.

As far as I’m aware and to my limited knowledge, the covid laws are new? And even the alert level system and its implications.

The change of law would be a carve out and thus neutralise the MAC event. What I am suggesting is that the emergency powers were a part of the NZ legal system and did not need a change of law to enable them. Consequently I am suggesting that the MET directors cannot rely on a change of law to defeat the MAC trigger. The restrictions placed on Metlifecare (and others) are as a result of exisiting law.

The Health Act had already allowed for quarantining and isolation. Amongst others, there was also the Epidemic Preparedness Act 2006 http://legislation.govt.nz/act/publi...html#DLM404483

‘The powers under New Zealand's emergency legislation did not require new Bills to be passed. The existence of several statutes that make up the country's legislative framework were already in place, and were simply enacted”
https://www.newshub.co.nz/home/polit...t-dispute.html

The MET directors may have a chance relying on the “general economic conditions’ carve out. However on that front I think that they could well be defeated by the fact that emergency provisions of various Acts have been employed by the Government as a result of a health epidemic.

[Joshuatree]

worth going back to the beginning, heres an example questioning the discount way back then and sauces reasoning.

2011

Hi Michael,

I'd be very careful with this one

You have to consider the relative economics. Metlifecare's assets have been creating significant losses for shareholders, therefore the market is discounting them. This is the correct response from the market. The "valuations" mean a whole heap of nothing unless Metlifecare decides to sell their villages, and in that case they would still need someone in the market for an entire village to stump up that amount, or the valuation still means nothing. So basically, the NTA valuation you mention is information that is not as useful as it seems.

If I had a bank account with $1,000,000 cash balance (that could never be withdrawn) that was losing -5% a year, and I told you I had a registered valuation on the bank account identical to its NTA of $1,000,000 but I would kindly sell it to you at a 50% discount (i.e. $500,000). Would you jump at the opportunity? I think you would have to be pretty damn sure that bank account would return to +5% or more in a hell of a hurry before you got interested in buying my bank account at this "discounted" price.

RYMAN on the other hand makes an economic return of about 30% on all the money it retains in the business. That's a formidable return and one that Mr Market will quite rightly pay a premium for. If I told you I had a bank account with $1,000,000 in it returning $300,000 a year compounding annually, what would you pay me for THAT bank account? I suspect you might part with a fair bit more than $1,000,000? Well so would the general market - hence the price offered for RYM shares.

Of course MET might turn its profitability around, in which case the current price might turn out to be a bargain. But there is a very good reason why MET is in the current situation its in. And that's because the business has performed very poorly. The opposite is true of RYM.

I think the time to get excited about a discount to net tangible assets is only when you have an insight into the business and its odds of achieving sound future economics i.e. profits and high, or at least adequate, returns on invested capital.

Cheers

Sauce

[Beagle]

The change of law would be a carve out and thus neutralise the MAC event. What I am suggesting is that the emergency powers were a part of the NZ legal system and did not need a change of law to enable them. Consequently I am suggesting that the MET directors cannot rely on a change of law to defeat the MAC trigger. The restrictions placed on Metlifecare (and others) are as a result of exisiting law.

The Health Act had already allowed for quarantining and isolation. Amongst others, there was also the Epidemic Preparedness Act 2006 http://legislation.govt.nz/act/publi...html#DLM404483

‘The powers under New Zealand's emergency legislation did not require new Bills to be passed. The existence of several statutes that make up the country's legislative framework were already in place, and were simply enacted”
https://www.newshub.co.nz/home/polit...t-dispute.html

Extract from MET's response "Further, the level 4 lockdown restrictions impacting the operation of our business and most other businesses in New Zealand result from changes in law. These changes have been implemented through a number of new legislative instruments including the section 70(1)(f) Health Act Order made on 3 April 2020 (as amended on 22 April 2020), the section 70(1)(m) Health Act Order made on 25 March 2020, and the COVID-19 Response (Urgent Management Measures) Legislation Act 2020. There is no basis to suggest that these changes in general economic conditions and changes in law"

Amendments to the law are generally considered to be changes per se. (But who really knows how this will turn out and who is right or wrong and earlier today it was suggested a coin toss would give as good as likely an answer as anything else so that's what I did, tossed a $2 coin, heads the Scheme implementation agreement will go ahead and tails it won't...the coin came down tails).

Just as well I only bought enough at a price that I am happy to own long term.

[Longhaul]

worth going back to the beginning, heres an example questioning the discount way back then and sauces reasoning.

2011

Thanks Joshuatree, this Sauce character was a pretty clever condiment by the looks of things. Very helpful, even after 9 years!

[Bjauck]

Extract from MET's response "Further, the level 4 lockdown restrictions impacting the operation of our business and most other businesses in New Zealand result from changes in law. These changes have been implemented through a number of new legislative instruments including the section 70(1)(f) Health Act Order made on 3 April 2020 (as amended on 22 April 2020), the section 70(1)(m) Health Act Order made on 25 March 2020, and the COVID-19 Response (Urgent Management Measures) Legislation Act 2020. There is no basis to suggest that these changes in general economic conditions and changes in law"

Amendments to the law are generally considered to be changes per se. (But who really knows how this will turn out and who is right or wrong and earlier today it was suggested a coin toss would give as good as likely an answer as anything else so that's what I did, tossed a $2 coin, heads the Scheme implementation agreement will go ahead and tails it won't...the coin came down tails).

Just as well I only bought enough at a price that I am happy to own long term.

I bought to be a long term holder as well!

I am sure there is plenty for the lawyers to argue over until the A2 dairy cows come home!

The 2006 Epidemic Preparedness Act had already allowed for the amendment of primary legislation by Executive order in order to manage outbreaks of infectious disease.

The use of existing legislation containing emergency provisions may have been enough to materially impact MET even without any subsequent legislative changes.

Disc: ATM holder!

[percy]

Thanks Joshuatree, this Sauce character was a pretty clever condiment by the looks of things. Very helpful, even after 9 years!

He was brilliant.
Sorely missed.

[King1212]

So long master Beagle still on the ship....I will be onboard..even as a janitor....I like the job title...lol

[Beagle]

Originally Posted by Sauce
Hi Michael,

I'd be very careful with this one

You have to consider the relative economics. Metlifecare's assets have been creating significant losses for shareholders, therefore the market is discounting them. This is the correct response from the market. The "valuations" mean a whole heap of nothing unless Metlifecare decides to sell their villages, and in that case they would still need someone in the market for an entire village to stump up that amount, or the valuation still means nothing. So basically, the NTA valuation you mention is information that is not as useful as it seems.

If I had a bank account with $1,000,000 cash balance (that could never be withdrawn) that was losing -5% a year, and I told you I had a registered valuation on the bank account identical to its NTA of $1,000,000 but I would kindly sell it to you at a 50% discount (i.e. $500,000). Would you jump at the opportunity? I think you would have to be pretty damn sure that bank account would return to +5% or more in a hell of a hurry before you got interested in buying my bank account at this "discounted" price.

RYMAN on the other hand makes an economic return of about 30% on all the money it retains in the business. That's a formidable return and one that Mr Market will quite rightly pay a premium for. If I told you I had a bank account with $1,000,000 in it returning $300,000 a year compounding annually, what would you pay me for THAT bank account? I suspect you might part with a fair bit more than $1,000,000? Well so would the general market - hence the price offered for RYM shares.

Of course MET might turn its profitability around, in which case the current price might turn out to be a bargain. But there is a very good reason why MET is in the current situation its in. And that's because the business has performed very poorly. The opposite is true of RYM.

I think the time to get excited about a discount to net tangible assets is only when you have an insight into the business and its odds of achieving sound future economics i.e. profits and high, or at least adequate, returns on invested capital.

That might have been an astute observation 9 years ago however, the reality today is SUM, RYM and MET all produce underlying eps in the range of 40-50 cps. RYM was going to be just on 50 cents for FY20 but has withdrawn guidance altogether, suggesting it will be considerably less, SUM was going to be about $106m underlying, unchanged in 2020 compared to FY19 which is 46 cps but has also withdrawn guidance altogether suggesting it will also be materially less.

MET the only one of these 3 to have issued fresh FY20 guidance inclusive of the effects of Covid 19 has at its mid-point $86.5m underlying profit = 40.5 cents.
In my opinion its crystal clear all companies in this sector will be materially affected so its likely the underlying eps of these 3 won't be materially dissimilar to each other in FY20, certainly nowhere as materially different to explain the vast gulf in their respective share prices.

Turning to growth, MET has been growing faster than RYM over the last 5 years.
In the long run the market is a weighing machine not a voting machine. You can pay $4.17, $6.23 or $12.70 and you are getting ostensibly the same earnings. RYM achieves this because its business model is superior off $4.50 assets, SUM about $5 and MET about $7 NTA.

At the end of the day when its all said and done, its the eps that counts and if a $4.17 share gets you the same earnings and a better growth rate as a $12.70 share I am going to choose the $4.17 share every single time because quite clearly you can own 3 of them for the same price and still get change and therefore earn three times as much eps. I suppose being a bean counter means to me, what really matters is earnings. Others might invest for other reasons, like brand value or feel good factor because they won some Readers digest award and that's their prerogative and good luck to them.

[Cyclical]

Ok, let's assume for a bit that MET is being candid and their profit guidance is what one would expect and that we may see a 5 to 15% hit to property values over the next 2 years or so before a recovery. When you stump up $1.5b for a company, does the temporary decline in NTA really matter that much? One would assume they weren't planning to be in this game short term? So why do they really want to pull the pin? Is it because they offered too much in the first place (which was perhaps at the top end when times were good)? Do they no longer have the funding available, or has the funding suddenly become a lot harder to get? Did they stuff up and commit to something they now regret for some reason? Have they got other more pressing concerns closer to home? Or are they looking to beat it down a couple a hundred mil rather than wear the loss on the balance sheet? It just seems to be me they are using pretty lame excuses to try back out, hence my questioning the true motive.

[JeremyALD]

To be honest I'd rather MET just sue APVG for damages and continue on with the business. I'm happy to hold for 5 years plus and I'm sure we'll see a good return over that time horizon. I kind of feel sorry for customers and staff if they are left with a company that didn't want them or the business.