OCA - Oceania Group - retirement villages

[allfromacell]

As a business you cannot be reliant on government handouts or subsidies. Maybe it’s time to pay nurses more in rest homes and charge the customer far more money.

Which is exactly what OCA has been doing with its transformation to more premium care.

The government has a very short sighted approach, they need these 'corporations' more than they realise, there is a public health crisis on the horizon as this tsunami of elderly will almost all need care over the next decade.

These corporations are actually competent in building hospitals and all the other infrastructure needed in taking care of the elderly, NZ governments on the other hand have a woeful track record of building infrastructure, abandoning this sector is such an obvious mistake.

NZ really is becoming a difficult place to choose to invest in, let alone live and work.

[Louloubell]

Sorry Maverick and others, but I don't think the dark days are behind us.

The increased funding will be totally gobbled up by the new pay rates for nurses.

This will be another legislated Pay Equity deal, similar to those made for support workers in the aged care and mental health sectors.

Pay equity is all about ensuring that female-dominated professions earn the same money as males in comparable jobs of complexity.

Don't shoot the messenger please.

[Ggcc]

Which is exactly what OCA has been doing with its transformation to more premium care.

The government has a very short sighted approach, they need these 'corporations' more than they realise, there is a public health crisis on the horizon as this tsunami of elderly will almost all need care over the next decade.

These corporations are actually competent in building hospitals and all the other infrastructure needed in taking care of the elderly, NZ governments on the other hand have a woeful track record of building infrastructure, abandoning this sector is such an obvious mistake.

NZ really is becoming a difficult place to choose to invest in, let alone live and work.

Pay nurses more than they get in the public sector (~$30,000 more) and charge the customer the difference split between residents

[Beagle]

Pay nurses more than they get in the public sector (~$30,000 more) and charge the customer the difference split between residents

That would be wonderful if it could happen.

I respect my friend Maverick when he says that basic care is still marginally profitable but all my instincts as a bean counter tell me it all depends upon the cost base you use. If you amortize a fair proportion of managements time and head office overhead and costs to the basic underfunded care side of their business, (which is still a big component of their existing business model), I would respectfully suggest they make a significant loss on the provision of those services. What is completely without debate is that it does not give a satisfactory return on capital employed.

Even after the complete scheduled transformation of their business model which is still about 5 years away basic care that is woefully underfunded by Govt makes up about 30% of their business model, (from memory), and its clear in this very socialist political environment Oceania will never get an acceptable return and is statute barred from charging those customers more as I understand it.

Therefore OCA's business model for the foreseeable future is analogous to driving a pretty good car with the handbrake partially on. I say a pretty good car because I believe most people really want a full feature retirement village with all the bells and whistles not a boutique one like OCA generally provide. The evidence with SUM backs this up with many units presold long before delivery and long wait lists at many of their established villages. SUM is in effect, the Mercedes-Benz of this sector. With OCA you can't take that pretty good car down to the mechanic and get the handbrake to release properly straight away and that's why this car is cheap and will probably stay cheap for the foreseeable future.

Over time my hope is that they will continue their business model transformation such that they move further and further away and eventually completely eliminate the provision of basic care services. The handbrake will be fixed then but that's maybe 10 years away and only if management continue to transform their business model.

Sadly, the time is coming in N.Z. when if all you can afford is affordable Govt funded basic level late stage care, its probably going to be a case of good luck finding a decent operator to provide it. That is the future this socialist Govt is setting old folks up for...hurting the very people they are supposed to represent...oh the irony !

I will try and remain a shareholder for a few more years and see if they can make any meaningful progress but my patience to see acceptable returns to shareholders on their risk capital employed is not infinite. One supposes that with the massive explosion in Covid cases in N.Z. (over 13,000 today) its inevitable we will see some deaths in care facilities for the various listed operators soon and that's not going to help market sentiment !

[Panda-NZ-]

Muldoon and his lot called enforced private savings plans a socialist conspiracy.

So today most elderly rely heavily on the govt for nearly all aspects of life.

[Baa_Baa]

Just probing a bit, are you suggesting that OCA abandon the continuum of care part of the business model because the late care part of that strategy is marginal profit or in your analysis a loss leader?

I can't see that happening TBH, the whole thing is underpinned by a 'care theme'. It has also un-apologetically targeted the rich or wealthy folks who want a posh home - in Auckland anyway. Or high to very high living standards elsewhere. Top end niche accommodation. I'm ok with that, it is what differentiates OCA. The ageing population will present enough percentage to those who can afford to pay for it, the RYMs and SUMs can have the rest.

There are lots of companies who have parts of their business that draw in customers but are not very profitable, or even make a loss, in favour of all the other components of the business and services that are profitable, resulting in an overall successful and profitable business.

That would be wonderful if it could happen.

I respect my friend Maverick when he says that basic care is still marginally profitable but all my instincts as a bean counter tell me it all depends upon the cost base you use. If you amortize a fair proportion of managements time and head office overhead and costs to the basic underfunded care side of their business, (which is still a big component of their existing business model), I would respectfully suggest they make a significant loss on the provision of those services. What is completely without debate is that it does not give a satisfactory return on capital employed.

Even after the complete scheduled transformation of their business model which is still about 5 years away basic care that is woefully underfunded by Govt makes up about 30% of their business model, (from memory), and its clear in this very socialist political environment Oceania will never get an acceptable return and is statute barred from charging those customers more as I understand it.

Therefore OCA's business model for the foreseeable future is analogous to driving a pretty good car with the handbrake partially on. I say a pretty good car because I believe most people really want a full feature retirement village with all the bells and whistles not a boutique one like OCA generally provide. The evidence with SUM backs this up with many units presold long before delivery and long wait lists at many of their established villages. SUM is in effect, the Mercedes-Benz of this sector. With OCA you can't take that pretty good car down to the mechanic and get the handbrake to release properly straight away and that's why this car is cheap and will probably stay cheap for the foreseeable future.

Over time my hope is that they will continue their business model transformation such that they move further and further away and eventually completely eliminate the provision of basic care services. The handbrake will be fixed then but that's maybe 10 years away and only if management continue to transform their business model.

Sadly, the time is coming in N.Z. when if all you can afford is affordable Govt funded basic level late stage care, its probably going to be a case of good luck finding a decent operator to provide it. That is the future this socialist Govt is setting old folks up for...hurting the very people they are supposed to represent...oh the irony !

I will try and remain a shareholder for a few more years and see if they can make any meaningful progress but my patience to see acceptable returns to shareholders on their risk capital employed is not infinite. One supposes that with the massive explosion in Covid cases in N.Z. (over 13,000 today) its inevitable we will see some deaths in care facilities for the various listed operators soon and that's not going to help market sentiment !

[Maverick]

I fully agree with you Beagle that it would be an easy job to demonstrate that care loses money. With just a few tweaks and reallocations of expenses as you rightly suggest it can be as ugly as one needs. But as the accounts are officially laid out here are the figures to date. (reprinted from an earlier post)

The ratio of operations expense /care fees tells a grim picture:
2017-83%...2018-87%..2019-.90%...2020-97%...2021-97%...2022-(inc estimated 2hy) 97%.


I got ahead of myself in excitement this morning when I read Andrew Littles intention to finally chuck a lot of money at the problem. I was anticipating a move like this as funding cuts as above have created an unsustainable industry that we simply cannot do without.
I've tried to imagine how the govt can funnel money to just the mom and pop operations and I can't see how they can do it . It's just too messy and manipulatable. The current system is already region and crudely needs specific and works well, it's just underfunded. Neither charity nor corporates are making proper (if any) money out of care.

And yes, I have to agree with you too louloubell, however it is restructured on how the extra money is handed out, it will be done in a style to just match any required pay rises as you suggest. So my first reaction this morning that any of the extra $ going to the bottom line is incorrect.

Anyhows...as said a load times, care does not, nor ever will make money. We ALL agree on that.

In saying that , OCA is tactically correct to persevere with the care component, profitable or not.

What the care is about and why it must stay is 3 fold:
1. building high density vertical care suits on the corner of the acreage unlocks free prime land for $$$premium apartments.(the real money spinner)
2. It gives OCA a point of difference in its brand, culture and offering.
3. Continium care is the NO1 reason folk choose a village. (That can only get more important).

What I don't agree with you on Beagle is that things will get worse. (As far as cost and market sentiment) IMO we have well and truely already reached that space.

I am standing by my comments this morning, that those who have endured the ongoing share price pain and negative market sentiment of this company to this point have done the hard yards already and when the FY comes out it will be much prettier than nearly all are expecting.

[Waltzing]

An investor can buy back in at any point in time or exit as the market is not the old ticker tape paper certificate. You can always place an off market order and have it filled if its or a reasonable size.

Investors are not limited to just buying retail on market even in NZ.

[percy]

You must spread some Reputation around before giving it to Maverick again.
Well I tried.
Another excellent post Maverick.Thank you.

[Beagle]

Baa Baa Just probing a bit, are you suggesting that OCA abandon the continuum of care part of the business model because the late care part of that strategy is marginal profit or in your analysis a loss leader?

Definitely not abandon care altogether. Abandon basic care, (small rooms with no facilities such as on-suite) that is underfunded by the Govt) YES !
An acceptable return for shareholders can be made from their care suites with possibly some tweaks to the DMF model, (I think 15% 15%, 10%) for a total of 40% is probably going to be needed in the future rather than the 30% model they use now and significantly increase the cost of premium rooms for those that don't want to engage in the care suite model. Leave basic care as the Government's problem, they're not funding it so sheet the problem back where it belongs. I know that sounds harsh but if the Govt are going to treat so called greedy corporate retirement villages as pariah's, (which seems to be the general overtone of their most recent statement), then there's going to be pushback sooner or later and those looking for basic level late stage care are going to be caught between a rock and a hard place.

Maverick - Mate my thesis is that the nursing shortage is going to get worse as more and more have to isolate due to catching Covid and they are going to have to pay them more because at present the nursing profession is in the hottest demand one in the world and there's HUGE money on offer overseas. The Govt is not going to properly fund nurses here when, (not if) they start costing $100,000 per annum so I'll give you one guess who is going to have to pick up the shortfall in care costs, that's right, shareholders.

Maverick What I don't agree with you on Beagle is that things will get worse. (As far as cost and market sentiment) IMO we have well and truely already reached that space.

We are going to have to agree to disagree mate. Wait until the bodies start piling up and the nurse and caregiver shortage gets even more critical. You won't have to wait long. Nobody can call the bottom, not you and not I. My very recent 1974 Commonwealth Games coin toss is just as likely to be right as it is wrong and has certainly been right so far $1.11 down to $1.05 in a very short space of time.

Who's to say there's isn't another 6 cent decline in short order or 2 or 3 times that ? What I do note is there is no TA signal that I am aware of that suggests a bottom is in...just the "abandoned baby" look to the chart.

Disc: I still hold a 6 figure sized stake but I am not going to try and delude myself this storm is over. I am happy to ride the storm out for as long as it takes but fasten your seat belts folks, more turbulence ahead ! Not backing the truck up yet and not even looking for the keys to warm it up.
Probably toss that coin again in late March if and only if there's some glimmer of hope indicated by TA signals.