OCA - Oceania Group - retirement villages

[Panda-NZ-]

If it goes below support it might be time to sell.

Plus coronavirus might still be an unresolved issue with what's going on in europe.

[Maverick]

I was talking with Mudfish today and ended up sending a bunch of messages to explain my thoughts on the upcoming announcement and share price. It reads pretty clear so I thought I may as well paste it on here as some here may be interested.


Here are the HY1 underlying profit results dating back to 2018;
20.7m-21m-24m-23.6m-?
I've calculated we will get $25.1m this HY if they sell 30 apartments ( I have formed this number by my usual ratios and adjusted down for the Auckland lockdown using SUM results). As I said today they have an unusually large pile of extra empty apartments to sell at the beginning of this period due to a lot of late deliveries last HY and early deliveries this HY.
After reading RYM results yesterday I'm now growing confident the lockdowns did not reduce new sales as much as I have allowed for. This coupled with such a large bunch of empty apartments at HY beginning I know am considering selling 50 is possible. This would simply reduce the overhang of new stock back to the normal top end of OCAs usual offerings. The more I contemplate it the more I think it's quite possible.

Also remember their care side is past the point of inflection and I calc they make an extra 1.5m or so extra each HY. So it's reasonable to assume the result will be 2-3m more than PCP disregarding sales effect.

Sooo,,, if they achieve new apartment sales of 30 (easy peasy) then they are currently trading at a PE of 16. If they manage to sell 50 apartments, the profit will end up near 30m then their PE will be 13.6.
Now if they achieve the base line 30 apartment sales to get approx 25m profit they would have grown profit with PCP by 6% , I`d say it deserves a PE of 18, that makes the SP worth $1.42. If they achieve utopia and sell 50 , their growth will be 27% up on PCP , surely that deserves a PE of 20 making the SP $1.90.
Remember these sales were done during lockdown and in winter so the next HY will almost certainly be better . HY2 is always better than HY1 anyway.

I'm picking the SP will rise to somewhere in between these 2 cases, say $1.50-$1.60 before Christmas.


While RYM and SUM have fallen lately , I do think that is logical as they are trading on very high PEs of 35 and 27 respectively as of yesterday. I would like to think the market is still remaining logical enough to see it has oversold OCA with a current PE of 16 once some facts come out shortly.
I'm saying at the moment the market has got it wrong with OCA and Greg T has it right.


Hope this is useful to readers here as this sizable SP fall is unsettling ( even as long term holders). It will be very welcomed to get some facts soon.

[Dlownz]

Nice Mav. Looks good. For the record Oceania gracelands hastings completed a total of 9 end of September and a October. Not sure how many will show in sales but they were all sold well before June I believe.
As well as turn over of existing units and running at their highest occupancy. I believe its undervalued at the moment but I just have to be patient. I had a order at 1.27 but I don't think I'm going to get it. All ready have alot 😊

[winner69]

Mav posted this bit -

Here are the HY1 underlying profit results dating back to 2018; 20.7m-21m-24m-23.6m-?

At least the numbers aren’t going backwards over time .. even though sales numbers have been climbing 92- 144 -185 -268

The old selling heaps more things and making stuff all more trick -- still puzzles me

this inflection point story they fabricated is a great myth I reckon - we've been conned

Shows you why worry about about Underlying Earnings - just look at Comprehensive Income and increase in Book Value --- all the other stuff is noise with Oceania

[Beagle]

Underlying earnings a non GAAP measurement was something started by Ryman and is easily enough understood and appropriate for them and some others in this sector. My own view (which doesn't fit with the accounting profession) is that with OCA as they have such a high percentage of their assets in PPE (property plant and equipment) with their care facilities underlying earnings do not encapsulate the progress being made in the same way as they do for the other companies in this sector.

Total comprehensive income therefore becomes the only relevant yardstick as this is really a property company that ostensibly makes nothing from care so to invest in property one must understand that its the total comprehensive income one is investing for.

It makes me sad to see this under what the true NAV is likely to be but further to my comments about possible regulatory changes I do feel that they can adapt their business model to suit any changes. For example if retirement companies were forced to pass on half the capital gain then the weekly fees and going to come in for very serious review as are the DMF percentages. You might see weekly fees double and DMF's uplifted to 45% over 4 years. (15% DMF fist year followed by 3 more years @ 10% per annum). If people don't like it then stay in your own home and good luck getting quality care in your old age.

Bottom line is I think companies can and will adapt if the "socialism stick" comes out so this selling below true adjusted NAV, (which I estimate as at least $1.40) at present isn't warranted.

[winner69]

Underlying Earnings good for measuring how well an outfit has done ‘operationally’ in the accounting period …a measure of their activities.

It doesn’t encapsulate increase in company value.

[Baa_Baa]

We've had theories put forward here of covid, inflation, rising interest rates, house prices peaking, rising building costs, labour shortages, risk of regulation.

Whatever it is, or all of them, OCA is not alone in the sector sell-down. The whole sector is re-rating.

Apologies for re-quoting myself twice, but my view is that the market doesn't like covid and especially so the retirement sector. We saw the 2020 fall in SP's almost across the board, whereas now in 2021 the market is more selective in writing-down company's SP's.

As we are exposed to daily covid updates, it's hard to piece it all together, it's easy to forget when key events happened even only a couple of months ago. What we need is a timeline, and here it is. From this we can correlate key events with the market reactions.

I won't bore everyone with a detailed analysis of key events, so if you bring up a SP chart for any of the RV's from late August, you will see a correlation to the covid timeline, beginning with L4 lifting, and progressing into Sept with reduction to L3 in Auckland, outbreaks in Wellington, Waikato and Northland, reduction to L2, a private RV outbreak, deaths happening and so on.

My conclusion is the retirement sector is being re-rated primarily through fear of covid in the community, and it is all but given that covid will spread nationwide. This is far more concerning to the RV sector imo as the country has accepted covid will become endemic.

So even though all retirement company's are already oversold, we can look back to see in 2020 that that 'technicality' didn't stop the fall in SP's. I would anticipate a scenario of less 'steep' or 'deep' decline than 2020, but a continued decline nevertheless. It may not happen, i.e. a sustained bounce in SP from current oversold, but I'm not counting on that happening just yet.

As covid spreads through NZ, it's understandable that the market is concerned, if not fearful, of outbreaks in the retirement villages. It's probably not 'if' but 'when' that happens in a listed RV company. This backdrop of covid creates lingering doubts and as we saw, even a very good results announcement like RYM has been met with sustained selling.

To end on a more opportunistic note, lower SP's are really good for DRP participants and value investors who want to take advantage of significant discounts to recent SP peaks, discount to NAV/NTA etc.

[winner69]

Isn’t an increasing death rate good for retirement sector …..quicker turnover of stock etc etc

[percy]

Isn’t an increasing death rate good for retirement sector …..quicker turnover of stock etc etc

Not if they die before they enter a retirement village.

[Baa_Baa]

Isn’t an increasing death rate good for retirement sector …..quicker turnover of stock etc etc

In cold hearted terms if the 'turnover' increased then for sure, it's good for business, but as you know in terms of reputational damage a covid outbreak in a listed RV could be disastrous in the medium term. Like who would put themselves or their parents or grandparents into a RV that 1. currently has covid, or 2. has been unable to keep covid out.