OCA - Oceania Group - retirement villages

[Greekwatchdog]

For Bars update this morning..

1H22 Result; Costs Overshadow Strong Trends


OUTPERFORM
Oceania Healthcare (OCA) reported a solid 1H22 result, slightly ahead of our expectations on underlying earnings and
EBITDA but below our expectations on annuity EBITDA. There were some clear positives at the revenue line with strong
growth in DMF and robust development margins, both driven by strong underlying trends within OCA's pioneering care
suite model. However, cost growth outpaced revenue growth within the care segment and on an overall basis driven by
increased overhead costs and the well flagged care cost inflation, as has been experienced by both Arvida (ARV) and Ryman
Healthcare (RYM). OCA is currently valued at one times last reported net tangible assets (NTA) and FY23 P/E of 12x; we
continue to see it as one of the most attractive risk/reward propositions across the NZ market.
What's changed?
Care suite model; from additional extra to a must have
OCA has pioneered the use of care suites in New Zealand, something we believe is becoming increasingly necessary to run a
profitable aged care business in New Zealand. Care suites deliver on two fronts; firstly, it increases the cash recovery of capex
materially, we estimate by 15–20% for an integrated operator. Secondly and increasingly importantly, it gives OCA an ability to adjust
pricing to offset what appears to be very strong cost inflation within aged care staff costs. We forecast OCA's care EBITDA to grow
by a CAGR of >20% over the next three years, helped by the maturity of the care suite model.
Inherent lack of productivity gains leaves care earnings exposed to the full force of inflationary pressures
There is an inherent lack of ability to improve productivity within the provision of care. This leaves care operators exposed to the full
force of wage inflation with increasing revenues the only lever to offset this, revenues that are to a large degree dependent on
government funding. We estimate that OCA's expenses per care bed is increasing by 7% per annum currently, something it is able to
somewhat offset due to the transition to care suites. However, at some stage we believe funding for care will need to increase.
Valuation and our view


We view OCA as one of the best risk rewards in the NZ market currently. It has sector leading cash recovery of capex, its care suite
focussed model provides some insulation against potentially stalling or falling house prices while it still provides strong growth in
underlying earnings as its villages mature. It is currently valued at 1x last reported NTA, 12x FY23 P/E and 20x FY23 EV/annuity
EBITDA — all of which are at an approximately 50% discount to its larger peer, RYM.

[jimdog31]

For Bars update this morning..

1H22 Result; Costs Overshadow Strong Trends


OUTPERFORM
Oceania Healthcare (OCA) reported a solid 1H22 result, slightly ahead of our expectations on underlying earnings and
EBITDA but below our expectations on annuity EBITDA. There were some clear positives at the revenue line with strong
growth in DMF and robust development margins, both driven by strong underlying trends within OCA's pioneering care
suite model. However, cost growth outpaced revenue growth within the care segment and on an overall basis driven by
increased overhead costs and the well flagged care cost inflation, as has been experienced by both Arvida (ARV) and Ryman
Healthcare (RYM). OCA is currently valued at one times last reported net tangible assets (NTA) and FY23 P/E of 12x; we
continue to see it as one of the most attractive risk/reward propositions across the NZ market.
What's changed?
Care suite model; from additional extra to a must have
OCA has pioneered the use of care suites in New Zealand, something we believe is becoming increasingly necessary to run a
profitable aged care business in New Zealand. Care suites deliver on two fronts; firstly, it increases the cash recovery of capex
materially, we estimate by 15–20% for an integrated operator. Secondly and increasingly importantly, it gives OCA an ability to adjust
pricing to offset what appears to be very strong cost inflation within aged care staff costs. We forecast OCA's care EBITDA to grow
by a CAGR of >20% over the next three years, helped by the maturity of the care suite model.
Inherent lack of productivity gains leaves care earnings exposed to the full force of inflationary pressures
There is an inherent lack of ability to improve productivity within the provision of care. This leaves care operators exposed to the full
force of wage inflation with increasing revenues the only lever to offset this, revenues that are to a large degree dependent on
government funding. We estimate that OCA's expenses per care bed is increasing by 7% per annum currently, something it is able to
somewhat offset due to the transition to care suites. However, at some stage we believe funding for care will need to increase.
Valuation and our view


We view OCA as one of the best risk rewards in the NZ market currently. It has sector leading cash recovery of capex, its care suite
focussed model provides some insulation against potentially stalling or falling house prices while it still provides strong growth in
underlying earnings as its villages mature. It is currently valued at 1x last reported NTA, 12x FY23 P/E and 20x FY23 EV/annuity
EBITDA — all of which are at an approximately 50% discount to its larger peer, RYM.

we continue to see it as one of the most attractive risk/reward propositions across the NZ market.

[winner69]

we continue to see it as one of the most attractive risk/reward propositions across the NZ market.

Analysts love OCA, insiders love OCA, majority on ST love OCA ……..seen as so cheap it’s not funny etc etc

Question then : why does the market per se (instos and fund managers) not like OCA? Lack of their support continues to suppress the share price.

Brett has to work that out and fix it.

[jimdog31]

Analysts love OCA, insiders love OCA, majority on ST love OCA ……..seen as so cheap it’s not funny etc etc

Question then : why does the market per se (instos and fund managers) not like OCA? Lack of their support continues to suppress the share price.

Brett has to work that out and fix it.

I think there has been a certain allocation towards the retirement sector, and the other options have been more appealing. SUM, RYM, ARV

it'll find its way to OCA eventually.

Every dog has its day.

[psychic]

Metlife was always consided a dog too right? In the end, buying MET at NTA (and less) was a winner regardless of the market love.
Patience...

[couta1]

Metlife was always consided a dog too right? In the end, buying MET at NTA (and less) was a winner regardless of the market love.
Patience...

Yep and I can tell you that Metlife is going great guns nowadays.

[couta1]

we continue to see it as one of the most attractive risk/reward propositions across the NZ market.

For sure, show me a better buy on the NZX.

[fiasco]

Was impressed on the call yesterday. I know there's a few things for the Exec to continue to work on which is great, looking forward to them raising care prices whilst reducing opex costs. I'm glad they value their people and are paying their employees above public care, we all know with COVID there is a massive talent shortage!

Happy to continue leaving this holding as is, and come back in a few years to a very different SP, just as I did with SUM!

[Shareguy]

Craigs not impressed. Neutral TP $1.40

Guidance withdrawn, outlook mixed. At the time of the $100m capital raise in March OCA issued guidance that the two acquisitions being funded by the raise would be "low to mid single digit EPS accretive" to then consensus estimates for FY22e uNPAT. OCA did not re-iterate that guidance today. In the absence of firm guidance, growing cost inflation headwinds, some deferral of new build completions due to recent Covid restrictions, and seasonality, suggests to us that trading will remain subdued in 2H22. We have upgraded our headline uNPAT estimate from $51m to $54m to reflect that OCA is now backing out depreciation on Care Suites to calculate uNPAT

[winner69]

Craigs not impressed. Neutral TP $1.40

Guidance withdrawn, outlook mixed. At the time of the $100m capital raise in March OCA issued guidance that the two acquisitions being funded by the raise would be "low to mid single digit EPS accretive" to then consensus estimates for FY22e uNPAT. OCA did not re-iterate that guidance today. In the absence of firm guidance, growing cost inflation headwinds, some deferral of new build completions due to recent Covid restrictions, and seasonality, suggests to us that trading will remain subdued in 2H22. We have upgraded our headline uNPAT estimate from $51m to $54m to reflect that OCA is now backing out depreciation on Care Suites to calculate uNPAT

That's one pretty damning report for Craigs to put out....obviously not fooled by the 'positivity' of the announcements.

Echos what I was saying yesterday

And I did note that OCA had changed how they had backed out some depreciation numbers.

On the old basis H! Underlying NPAT would have been $22.7m instead of the reported $27.5m

I hate it when companies keep changing how they report things .... makes it near impossible to track things in a consistent manner .... suppose thats why they do these tricky things

I think Maverick will be pulling his hair out recasting all the numbers in his spreadsheets to reflect the new way of doing things