OCA - Oceania Group - retirement villages

[couta1]

We will check your prediction this Friday ...after it goes ex divi and more news of Omicron is known

I've got Optimus Prime on speed dial to deal with that decepticon scumbag Omicron if need be.

[Poolboy]

that decepticon scumbag Omicron if need be.

Omicron... Omicron, that name rings a bell. I think I used to buy computers off them back in the 80's.

[cyclist]

Omicron... Omicron, that name rings a bell. I think I used to buy computers off them back in the 80's.

I know of them as a test equipment manufacturer for the power industry. Doesn't sound that scary 😀

[Snoopy]

There's little value in providing basic care services funded by the Govt Snoopy. Nobody is building new supply of basic care units which typically are only circa 15 sq metes.
I am going off memory here but when OCA listed they were about 70 / 30 basic govt funded care v premium care units.
Over time as they complete their redevelopment program they are moving to 30 / 70 basic v premium care units.
This year marks the point of inflection as noted in their annual report where its about 50/50.
Over the years ahead the sale of occupation right agreement units both apartments and care suites will generate a much higher return on invested capital than the Govt funded basic units would.
A good long read of the investor presentation and annual report would dramatically lift your understanding of their business model.
Investor presentation http://nzx-prod-s7fsd7f98s.s3-websit...710/326865.pdf
Annual Report...some good heartwarming stories in there about how well residents were cared for which got me thinking its not all about just the numbers...bet you never thought a greedy bean counting dog would say that http://nzx-prod-s7fsd7f98s.s3-websit...711/326868.pdf

A post (above) from July 2020

Excluding capital gains from resale of property here is the history of total employee costs as a percentage of gross revenue (including DMF revenue) since OCA listed:-
2017 60%, same level of efficiency Radius Healthcare currently have)
2018 62.3%
2019 64%
2020 66%
2021 65.9%
1H 2022 67.6%

Despite all the talk about transitioning to a new business model generating enhanced returns there has actually been a material decline in the efficiency of the business model, (this is what one analyst was getting at in the call today), since they listed in terms of what percentage of gross revenue flows through to shareholders. That said the change in the business model will generate higher resale profits in the future so overall the gradual business transformation is a good thing but like almost all good things they take a LOT of time.

Sure, some of the increase can be attributed to Covid specific matters, no argument there but this trend is concerning and started well before Covid and represents systemic challenges of our labour market and its flow through effect on shareholders returns especially in light of what appears to be a systemic issue with Govt underfunding the true cost of care.

Will the trend revert to the the low 60's percentage range when labour market challenges and Covid cost pressures ameliorate or do we face ongoing systemic challenges due to the severe staff shortages in the healthcare sector that will continue to pressure shareholders returns going forward ? That's the $64,000 question.

My opinion is these headwinds do not look likely to materially abate anytime in the foreseeable future so despite its apparent cheap price (as OCA is more affected by these challenges than any of the other main listed players) I see it as a hold at the current price and not the bargain it appears to be.

I think the analysts are a fairly optimistic with their average $1.71 target price.

That said, I think its clear the development numbers in FY23 are going to be strong with 113 care suites at Lady Allum deferred into FY23 so we should see underlying eps up nicely next year. Whether that's repeatable in FY24 and beyond is very hard to say but I certainly don't see increasing DMF revenue as a panacea for all the challenges OCA faces and they will need to keep up a strong development pipeline.
Increased resales should also be a very good positive in FY23. My hope is that Maverick is right and that increased level's of new independent living units being developed over the next few years (which is where the real money is) will finally give shareholders some real joy.

I appreciate that people (or dogs even) are allowed to revise their opinion as market conditions evolve. And I don't disagree with Beagle's latest assessment (above). But one thing that is puzzling me is the joining of the dots between the July 2020 position and today. The elderly homeowner, on the cusp of moving into care, is on paper up to 40% better off today if they convert their house to cash. So, on paper, there should have been plenty of money to move from their house to a 'premium' care unit which OCA are specialising in. And IIRC I was told that though there are rich all over the country, there are so many multi-millionaire home owners in Auckland, that the construction of entire 'premium' villages is viable, and OCA are the ones best positioned to benefit.

So what happened?

SNOOPY

[Beagle]

Hi Snoopy,

I think much has already been explained but obviously the pandemic has dragged on and on and the cost of providing care services has far outstripped Earl's representations made as recently as Feb 2021 wherein during the call when he responded to a question from one analyst regarding how they should think about the cost of care going forward and he said that he believed it would move up in line with MOH funding, or words very close to that effect. I don't think some of the analysts on the call on Monday are very impressed to now see care costs rising at 9% per annum ! Its rather convenient for Earl he's not here to face the music.

Therefore I am not surprised to see analysts pulling back their forecasts...first indications are starting to come through some are not impressed. Average target price before the result was $1.71 and is now $1.64 and may reduce a little more once all the revised forecasts are in
https://www.marketscreener.com/quote...268/consensus/

Obviously being in dispute with MOH for 4.8% of extra costs they're not funding is a real headwind to the business, until its resolved.
To me from comments across the sector by OCA and other operators, MOH are simply not funding the extra costs imposed on care business's by Covid and that seems egregiously unreasonable considering quality health care providers are doing an awesome job of protecting the elderly and vulnerable.

In a quieter moment I sometimes ponder if we're headed towards a situation where the MOH underfunding will become so chronic that if you want quality care you'll be forced to buy a care suite ? I wonder in due course once OCA have achieved their targeted 70:30 premium / basic care transformation whether they'll keep going and ultimately almost completely transform to only a premium care suite and independent living unit business model and get out of basic care altogether ?

There is clearly more money to be made with independent living units. I am not sure if my recollection is that good but I think originally when they acquired the new full feature village at Waterford in Hobsonville they were going to add a whole bunch of care suites but I noted in the presentation the other day they are planning for 50 more independent living apartments. I might be over or misinterpreting this but I am encouraged by what I see as perhaps a subtle shift in focus towards more independent living units.

Finally, June 2020 is a long time ago my friend. Everyone needs to be agile and on their toes to navigate this difficult market.
Disc: Holding a modest sized stake.

[couta1]

Hi Snoopy,
I think much has already been explained but obviously the pandemic has dragged on and on and the cost of providing care services has far outstripped Earl's representations made as recently as Feb 2021 wherein during the call when he responded to a question from one analyst regarding how they should think about the cost of care going forward and he responded that he believed it would move up in line with MOH funding.

Obviously being in dispute with MOH for 4.8% of extra costs they're not funding is a real headwind to the business, until its resolved.
To me from comments across the sector by other operators that MOH are simply not funding the extra costs imposed on care business's by Covid and that seems egregiously unreasonable considering quality health care providers are doing an awesome job of protecting the elderly and vulnerable.

In a quieter moment I sometimes ponder if we're headed towards a situation where the MOH underfunding will become so chronic that if you want quality care you'll be forced to buy a care suite ? I wonder in due course once OCA have achieved their targeted 70:30 premium / basic care transformation whether they'll keep going and ultimately almost completely transform to only a premium care suite and independent living unit business model and get out of basic care altogether ?

Your last paragraph is the point especially if any Govt was dumb enough to interfere too much with the current model, operators like OCA could just wind back their hospital and dementia care levels leaving a massive ongoing problem for the Govt to deal with.

[850man]

Your last paragraph is the point especially if any Govt was dumb enough to interfere too much with the current model, operators like OCA could just wind back their hospital and dementia care levels leaving a massive ongoing problem for the Govt to deal with.

Not wanting to get political but agree that government intervention is a huge risk, based on track record of meddling and making things worse overall even for the group they are intending to help

[Sideshow Bob]

Another little climb today.....

[Panda-NZ-]

If there was not a cure to aging on the horizon then I wouldn't want to check in to places such as this.

Keep the inheritance intact, spend my final year in a motorhome going up and down NZ for a couple of years, eating what I want etc. Would be a better situation.

[bottomfeeder]

If there was not a cure to aging on the horizon then I wouldn't want to check in to places such as this.

Keep the inheritance intact, spend my final year in a motorhome going up and down NZ for a couple of years, eating what I want etc. Would be a better situation.

Yes, but when you are not very mobile, perhaps incontinent, or losing your mind a little, aches and pains, problems with balance, you have no other alternative. You are not like wine, humans always get worse with age. Some worse than others. Perhaps you will be one of the extremely lucky ones. But after your couple of years on the road, then what.