OCA - Oceania Group - retirement villages

[Beagle]

OCA has been through the three years of its business transition to get it to the point of inflection. Market is currently waiting to see the results of that bear fruit before according it an average multiple for this sector. I think OCA has a lot of potential to outperform the sector in the next 3 years as the fruits of their business transformation become readily evident to the market.

Management have guided that human resource costs increases going forward are broadly expected to be in line with the MOH care fee growth rate. They have a big job on their hands to control costs as the CAGR in human resources costs since listing has been much higher than the annual rate they have guided going forward. If staff costs continue to grow at 7-8% per annum and care fees only at 3% per annum this will undermine the benefits of their business model transition. SUM's costs were also well up in FY20 so its a problem for the whole sector.

SUM look fully priced to me but with their focus on independent living units are probably a good complimentary holding to OCA. I presently hold NUN but probably should hold SUM, excuse the pun. I think Furbar have SUM on a forward PE of about 22 which is not unreasonable but they are trading right at the top of their price target 12 months hence.

I think the circa 10% correction in OCA's price in the last few weeks has been a bit harsh and they represent good value in the mid 140's but the key risk outlined above should not be ignored.

[justakiwi]

So you no longer hold OCA?

[Beagle]

Just to clarify. I presently hold no SUM. OCA is my #3 investment position. I also hold some ARV in this sector.

OCA tested their 100 day moving average this week at $1.40 and held. That's good. Hope it stays that way.

[justakiwi]

Thanks for the clarification. I misinterpreted your previous comment.

[Blue Skies]

Ditto, also reading that thought you (Beagle) had sold out, but glad to hear OCA your number 3 invest' position, with conviction

[clearasmud]

OCA for the long term!
SUM is more expensive because it's a managed funds "darling"

[James108]

SUM is more ‘expensive’ because it has historically grown earnings faster and probably will grow them faster going forward (in the short term). As I mentioned summerset were developing new units at a faster clip (in proportion to current units) than any other operator.

I can understand why there is confusion about the relative growth potential of Oceania vs summerset as the accounts of retirement operators are quite complicated. But I made a detailed model of oca and sum 3 or 4 years ago and it was apparent summerset growth would be far greater.

Does that mean summerset is a better buy at the moment... well no as you pay for that future growth. but compare them solely based on underling p/e at your own peril.

[clearasmud]

Thanks James for your view.

[Beagle]

SUM is more ‘expensive’ because it has historically grown earnings faster and probably will grow them faster going forward (in the short term). As I mentioned summerset were developing new units at a faster clip (in proportion to current units) than any other operator.

I can understand why there is confusion about the relative growth potential of Oceania vs summerset as the accounts of retirement operators are quite complicated. But I made a detailed model of oca and sum 3 or 4 years ago and it was apparent summerset growth would be far greater.

Does that mean summerset is a better buy at the moment... well no as you pay for that future growth. but compare them solely based on underling p/e at your own peril.

Agreed but that's fully priced in. Longer term OCA's model which recycles units faster, (remember they are really targeting an older customer), will kick in and (to quote an overused cliché frequently used by John Key) supercharge the growth going forward.

Yes OCA has reached the point of inflection with their business model transformation but yes it will take time for earnings momentum to grow. The analogy I would use is a snowball rolling down a hill. It gather mass and pace steadily, over time.

[Beagle]

https://www.nzherald.co.nz/business/...MJY6TRYPG22NQ/

Full steam ahead for the property market with the highest volumes in 17 years and median prices up 3.7% on January.

And this https://www.interest.co.nz/property/...y+3+March+2021

Hope Earl is taking notice and reprices their units as we head into FY22. Put the heat on interested parties, shareholders want better returns and profit growth. I suggest 15% price increases across the board to take effect 1/04/2021. Sign up now or pay more later.