OCA - Oceania Group - retirement villages

[Ferg]

The aged care element is an attraction for some people. A number of businesses have what is called a "loss leader" to bring in clients - yes they might lose on one part of the business but that is more than made up for in other parts of the business. But to cut off the loss leader might have a bigger impact on the business than just what the books say for that one part.

But more importantly, OCA will be walking a tightrope on the provision of aged care services. They can't show super profits for fear of getting less Government funding. But they can't show losses for fear of getting shareholders offside (plus they will genuinely NOT want to lose money on these services). They will want to be "in step" with similar service providers nationally. I have no doubt Management are aware of this and we should give them some credit for having to walk this tightrope.

The DHB will know exactly what it costs to run this sort of service, even with differing levels of service based on patient needs. Health contracts often have financial adjusters for exactly these sorts of things. The DHB will also know COVID issues and mandates will be impacting upon the demands on and recruitment of staff - they face the exact same problems. The DHBs are not silly, and nor is Management. An advantage for OCA is they will likely work across multiple DHBs so they will know what they are doing. Plus it is a symbiotic relationship where each needs the other. The DHB do not want to provide the service, but the service is needed so it has to be funded correctly, otherwise private sector capacity will be reduced. I expect there will be increased funding from 1 July.

Before we jump to conclusions about the fairness of giving extra funding for small charity providers, there are already equivalent adjusters in the health sector. For instance, rural practices get upwards financial adjusters given they do not have the benefit of scale like city practices. There are also adjusters in various contracts based on patient needs. In other words, not everything is vanilla and it has not been for some time. And whilst Andrew Little might espouse his socialist views on the industry, I'm not worried about it given the private sector have shown they are better than central Government at building aged care capacity and providing such services. Plus there have been various financial adjusters in health contracts for many years. Let's give Management and the Board some credit for knowing what they are doing - we are working off minimal information compared to them and they are looking forward a lot more than we are.

[Beagle]

Good post Ferg and fair enough. I guess after nearly 5 years I am impatient to see eps growth. Heck, just getting underlying eps back to where it was in 2018 seems like an enormous challenge at this stage.

[Ferg]

Patience my dear fellow, patience.

Some basic stats:

2017:

• Care Beds 2,580 (income = Government funding + some premium payments)
• Care Suites 242 (income = Government funding + premium payments + DMF fees)
• Units 1,054 (income = gains on sale/resale + DMF + activities + opex recovery)

2022 half year:

• Care Beds 1,803 (down 777 or -30% since 2017)
• Care Suites 849 (up 607 or +251% since 2017)
• Units 1,509 (up 455 or +43% since 2017)

We can already see the numbers shifting as premium care revenues increase. Projections put the number of care suites more than the number care beds some time in the next 2-3 years.

The half year development pipeline under construction increased by 150 units and suites over the last year end presentation.

Per their last half year report they said "CEO and GGM of Nursing & Clinical Strategy lobbying on behalf of the industry" under "Industry Advocacy" and they put the cost of COVID requirements at around $1m, which included a $350k one off gratitude payment to staff.

Also "Oceania has entered into an exclusive partnership with Bay of Plenty DHB to explore and develop a new service model for high needs and complex aged care residents."

OCA are not being passive or being passengers through this process - they are proactively seeking to solve the issues the industry faces.

I see a snowball effect coming but it requires patience.

[Maverick]

Ferg, thanks for those most excellent posts! particularly the refreshing point of giving credit to the many competent people in the process of these price settings that they are beavering away behind the scenes.

Just for fun Beagle, in regards to not knowing the bottom or top, of course that's true. But OCA is not some far off foreign IT company we are talking about here. We all know the NZ culture and specific stage we are at with covid and are in the luxurious position of knowing almost exactly what will happen and how its going to play out thanks to Aussy being 2 months ahead of us. As intelligent investors we will see through the media headlines and public fear to have a pretty darn good guess at what's coming. No need for coin tossing at all.

I loosely follow a few Aussy care stocks ( they don't have many and they run different models , but "aged care" they are.) One got taken over last year which leaves pretty well just Regis (REG). Check outs its SP chart for the last 2 years during all this, particularly the last 4 months when omicron surfaced.

It seems obvious to me NZ is now 1-2 weeks away from peak NZ infection. Something Aussy delt with late December. By overlaying the REG share price action and their covid timeline to ours, then one could easily say OCA has reached its own covid fear induced bottom last week or so ( sure, Ukraine muddies things) . Last week REG also came out with a profit report and what do you know...(just like SUM last week) everything is sailing along just dandy.

IMO this is an exceptional case where this is more science rather than "baby bottoms" and "heads and shoulders" charting stuff . I seriously think we can say with some confidence "about now is likely to be the optimum time to buy."

For any future readers the SP is $1.05.

[Greekwatchdog]

Slightly off OCA, but ARV should issue their "Newsletter" in the next week or so. After SUM's result earlier last week this should give us further update how the sector is going.

[winner69]

What's this talk of Oceania making no money on care beds

They proudly say that EBITDA per care bed is about $10,000 - and that's before dev margins and resale gains.

[Beagle]

Maybe people should look up the 6 month chart and ask themselves what sign is there that the bottom is already in ? When we eventually break back above the 30 day moving average line (currently just over $1.15), there is a reasonable chance the downtrend is over.

I have learned from bitter experience there's no money in trying to pick bottom's.

~ 15,000 cases today...what could possibly go wrong

[Greekwatchdog]

Only numbers Beagle, the only numbers we need to worry about are people in Hospital and ICU.

[Waltzing]

"I see .... patience."

in the mean time if the presentation of FA and the result isnt clear the market might put a sub 1 handle on it.

[BlackPeter]

...

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.

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.

Sounds like you expect Armageddon to arrive over the next couple of weeks. Who knows, maybe it does and NZ is the only country in the world which crashes under Omicron ... most other countries (like US. UK, Australia) are already over it. Sure - there might be a handful of "interesting" weeks to come, but what difference does this do exactly to anybody with a time horizon longer then a fruit fly?

But lets assume you are right and the world as we know it goes under - what I can't understand is why you still would bother under these circumstances about financial returns? I am sure we all have enough funds to cover the coming weeks ... and hey, after the end of the world we won't need the money any more. It even could be a disadvantage if you remember Matthew 19.24: "Again I tell you, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.” According to the good book should we all buy OCA and hope that beagle is right that it will loose in value, assuming we want to enter the kingdom of god.

With all due respect, but I think you might be overestimating the long-term impact of Omicron. This is a short term issue, quite irrelevant for any investor, though the hype ripple might well offer traders some interesting opportunities ...