OCA - Oceania Group - retirement villages

[Beagle]

Ryman, Pushpay, Meridan, Synlait and A2 were the worst 5 on the NZX50

Can't imagine you 'investing' in any of those

That's the dog's of the dow theory for the NZX done like a dog's dinner right there !

I might put a paw up for a few Meridian in the very low $4's if they ever get there but the rest of them can stay in the dogbox where they belong.

[Biscuit]

That's the dog's of the dow theory for the NZX done like a dog's dinner right there !

I might put a paw up for a few Meridian in the very low $4's if they ever get there but the rest of them can stay in the dogbox where they belong.

Should give a good theory a fair chance though. I don't think I'd put a wager on it but surely its fair odds that on average the "dogs" will out-perform OCA over the next 12 months?

[Muse]

Should give a good theory a fair chance though. I don't think I'd put a wager on it but surely its fair odds that on average the "dogs" will out-perform OCA over the next 12 months?

RE the general dogs of dow theory here is an interesting ASX factoid for everyone: the 10 worst performing stocks on the ASX were up 27.8% in 2021 with 9 of the 10 of them up.

[Beagle]

Should give a good theory a fair chance though. I don't think I'd put a wager on it but surely its fair odds that on average the "dogs" will out-perform OCA over the next 12 months?

Mate, with all due respect, you either think its good odds and will back it or you don't. I wouldn't own any of those shares other than Meridian if it gets down to about $4.20 or maybe RYM at about $7. If they don't get down that low, I'm not concerned.

[Maverick]

Happy new years fellow posters!
Let's crack off the new year with a classic long and windy speel.
All this chit chat about stock picking lists and annual competitions is not where I'm at , that all sounds like horse racing to me.

I posted recently about OCA`s build rate and its dominant downstream impact on the bottom line (post 11288) and then the ongoing annuity (DMF) income thereafter.

This is a follow on to that post so that's worth re-reading to help understand this post better.
My concern with OCA is the historical build rate of about 215 p/a. It just isn't enough now that the company has new shares and is now a 2.3B company. Over the new year break I've put some focus into the possibility of Brent's new verbal build target ramping up to 300-350. I had initially dismissed this ambitious statement from my workings in the meantime and said I'll believe it when I see it.

After more mulling, I've now concluded there are now enough clues that he is actually doing as he claims. My reasoning is as follows:
-Last HY saw a very large increase in capex from $40m to $70m.
-Commencing construction of 209 units in the last 6 months 1HY22.
-Raising an extra spare 20m in the capital raise suggests to me expansionary thinking.
-Hiring 2 extra heavy hitting directors. Rob's area is capital markets and Peter`s in property developments.
- And just having a ****-ton of pre-consented construction on hand all set to roll out at will.

So they have the land, the consents, the staff, the funding , the new target… and it seems from the increased capex spend that they have already pulled the trigger.

After sitting in the cynical camp for a while I've decided there are enough clues now to safely join some dots that the rate increase is real.

It will take 5 years from now for the recent projects started to be mature villages so of course this ramping up now won't produce profit immediately. The good news is that it's only 1.5 - 2 years when this capex spend increase produces rewards. firstly with the sugar rush of new build margins (20-35 % of the spend depending on the region) which then reduce and settle into ongoing village annuity (DMFs- 10% for each of the first 3 years). So you can see any capex dollar spent now produces handsome returns over 1.5 - 6 yrs. of about 50-65%.
It also increases the NTA which the share price seems tied to for now.

To quantify how significant the 2 build rate differences of the historical average of 215 is to the new 325 target, I've run the scenarios through the good ol` spreadsheets.
A build rate of 215 over next 7 years = cagr 12%.
A build rate of 325 over next 7 years = cagr 17%.
On top of this are annual dividends to enhance returns further ( say 3% net) .
But wait , there's more!!! If a company can regularly offer somewhere between 12-17% cagr then there is going to be some nice PE expansion for the share price from its current PE18.

So there's plenty to be happy about if one truly has a long term strategy. Certainly not a share that will give many thrills to people who love the market excitement of the NZX but it's rare quality combo of a very solid future returns with the underwritten safety of buying at NTA.(which is constantly growing in itself).

Ps. The 12% growth has already been in play since passing the care profit inflection point but was swallowed up in the recent HY1 by covid costs , paying the wage subsidy back , covid lockdowns and dilution effect of the new capital raise shares. All these are one offs (well maybe not the covid cost just yet) so OCA just might sneak out of the dog box 2022. If not this year then CERTAINLY calendar year 2023 when Waimarie starts selling.

[Rawz]

As per... brilliant post Mav. Very insightful, thanks a million for sharing

[bottomfeeder]

Ultimately the build rate must reach saturation by all resthome providers. Long term profitability must be measured by their operations and not growth.

[Snow Leopard]

Ultimately the build rate must reach saturation by all resthome providers. Long term profitability must be measured by their operations and not growth.

No growth, no profit.

[Beagle]

Happy new year to all.

Good post Mav but I remain cautious of any quick bound up in the build rate....supply chain issues and constrains around physical capability of the construction firms they use in terms of numbers of personnel.

From vague memory, I think they may have tweaked the business model for care suites to 15%, 10%, and 5% DMF.

Valuers use a 14+% discount rate to value the cash flow from units so over the long term one would hope OCA attain at least this return.

Interestingly on the call the team alluded too the true fair NAV (net asset value if unsold units were priced at market value and developments in progress at cost) as being $1.42 as at 30/9/2021.

The real estate market has risen in the last quarter of 2021 and of course you've got 3 months more of that 14% discount rate the valuers use (3.5% per quarter) so I think fair adjusted NAV is currently in the vicinity of $1.42 + 3.5% = ~ $1.47 With the shares closing last year at $1.34 that's close to a 10% discount to estimated current fair value NAV. That seems like a reasonable place to put fresh capital to work so I am biased towards upsizing my current fairly modest free carry holding.

[BlackPeter]

Ultimately the build rate must reach saturation by all resthome providers. Long term profitability must be measured by their operations and not growth.

True ... however - what is long term?

For the next 2 to 3 decades or so demand will continue to increase, and with it needs to go the supply.

I agree that around the mid of this century we likely will have a global population peak, and all will go down from there (is this another inflexion point?). This is when retirement villages will need to venture into other business ... or start shrinking.

Not sure, though whether this will be a big problem for my investment horizon :