OCA - Oceania Group - retirement villages

[Waltzing]

"IMO this would show a more correct cashflow "

The cash flow statement is therefore misleading and the Auditors need to Tag it?

In accounting there is a concept called Materiality.

"Its all Debits and Credits all the way down young man."

A play on the classic joke of doctor Richard Feynman.

[Ferg]

No, I don't think so. It's a question of interpretation. By a strict interpretation of cash flows, they have shown it correctly. But from a commercial perspective it is misleading and/or results in misinterpretation. I suppose that is why they used to previously provide the reconciliation because they could see it was a potential issue. I reckon if OCA were to adopt the method I proposed, the auditors may "tag it" as not being in compliance with the rules.

Edit: I should qualify my post in that I am NOT an expert in IFRS.....and my view above may be incorrect. Maybe there is wriggle room within the standards to do what I suggest.

[fish]

Appreciate the financial analysis we are being gifted .
I really struggle with some acronyms-eg ILU I was able to deduce but what is IFRS ?
?a type of financial reporting system or standard

[alokdhir]

Appreciate the financial analysis we are being gifted .
I really struggle with some acronyms-eg ILU I was able to deduce but what is IFRS ?
?a type of financial reporting system or standard

International Financial Reporting Standards ...many many versions too

https://www.ifrs.org

[jagger]

[deleted].

[Baa_Baa]

Edit: I should qualify my post in that I am NOT an expert in IFRS.....and my view above may be incorrect. Maybe there is wriggle room within the standards to do what I suggest.

The best thing about standards, is there are so many to choose from 😂

Thanks for your thoughts and Mav, I’m pretty happy with the results, the investment thesis is intact with a bright future ahead

[winner69]

Jeez - to get the big bonus(LTI) in a few years time they only need to grow underlying EBITDA by 10% pa from 2021 to 2024

EPS Performance Hurdle: Oceania’s annual growth in underlying earnings before interest, tax, depreciation and amortisation per share over the relevant performance period is equal to or greater than 10% per year

And hope the TSR is greater than the 35th percentile return of the NZX50 companies

Doesn't seem particularly demanding does it ...... hopefully not what they think shareholders want them to do

So did +16% in 2022 .... halfway to hurdle with 2 years to go ..... only need 7% pa over next two years ..... bonus money for jam

[Beagle]

Yes a pretty miserable "Be Kind" message from this helicopter money Govt, plenty of money for all kinds of other fringe stuff but nothing for this very important sector, meanwhile a few more smaller operators and not for profits will be about to throw the towel in, who will pick up the slack? best the larger players don't and pass the problem back to the Govt. Add to this that completely nutty immigration policy change which means the partner of a much needed nurse for instance can now only come on a visitors visa and not work as they currently can, meanwhile Aussie will welcome both on an open work permit, just insane with the dire need in the sector.

Just a few very quick comments from me today as a prelude to my detailed thoughts in due course. The political environment and the massive squeeze the Govt are placing on the care sector is a very serious headwind for OCA that won't abate anytime soon. If this woke Govt gets a third term, run for the hills

In the cashflow we have large ORA receipts for all sales of $214m, then a deduction for ORA payments for outgoing tenants of $70m which has been reduced by the management fee receivable to OCA (and payable by the outgoing tenant). So we have some mismatched lines in the cashflow. Payments for village opex & management appear in the cashflow as per normal as part of the $207m, but the funds to pay for that are hidden within the outgoing ORA payments which have been reduced by the amounts owed by outgoing tenants. In other words the top line receipts from clients of $190m are NOT grossed up for the management fee deducted from the outgoing ORA payment.

IMO to show this correctly, one would gross up the receipts from clients and the outgoing ORA payments for a nett effect of nil on the cashflow. I reckon this would show a more correct cashflow and it wouldn't seem such a "horror" despite the fact the client didn't pay the amount directly; it was paid indirectly via a reduced outgoing ORA refund. OCA did disclose this amount previously - per the 2021 annual presentation, page 32 has a reconciliation of resales cash flows - that shows $14m "DMF realised". That would change the 2021 operating cashflow to a positive. I cannot (yet) find this same figure for 2022 - this might be one of the things that was dropped.

Agree with your prognosis and this eases concerns regarding operating cashflow but there is very little money in care and care suites appear to confer no pricing power...more to come in due course on this topic.

Look forward to MR B's report.

Note: 2.1 and 2.2 , 3.1 ECT still make for an extensive read.

Fairly large set of Financial Accounts.

At a glance cost's look rampant...

Rampant they are indeed. The rate of increase in employee costs has risen to an all time record (12.65% including the profoundly illogical decision to repay the wage subsidy or 11.3% net of this "donation", choose your preferred type of poison) and is seriously outstripping the increase in Rest home Hospital and care fees, up only 5.3%. The increased rate at which employee costs are increasing is in many ways caused by the "Perfect Storm" of Covid and its impacts I'll talk about in more detail when time allows. Sorry, mate, my granddaughter has just arrived...and trust me on this, the decision to spend time with her cuteness or time analyzing OCA financial statements is a very easy one LOL

[Greekwatchdog]

For Bars review. Note they dropped all valuations by 10% last week re market conditions.

OUTPERFORM
Oceania Healthcare (OCA) reported a strong FY22 result given difficult circumstances. Underlying earnings and annuity
EBITDA were up ~+10% versus FY21 on an underlying basis against our expectations of a small decline. Relative to the
other three main listed aged care operators, OCA is more than 2x as exposed to care earnings where funding is currently
increasing substantially slower than costs. It is also (and related) not able to fully capture the all time high resale gains as it
is buying back some independent living units (ILUs) for brownfield development. What OCA has is a fast growing, defensive
and cash generative care suite earnings stream. OCA's care suite DMF and resale gains now equal approximately half of
OCA's FY22 annuity EBITDA. We have left our NZ$1.55 target price and OUTPERFORM rating unchanged.
What's changed?
FY22 result stronger than expected as OCA, much like RYM and ARV, did not see an Omicron slowdown
Annuity EBITDA was materially ahead of our expectations. The key areas that beat our expectations were (1) higher resale gains
driven by higher volumes and margins primarily related to care suites, and (2) lower costs. Net debt of NZ$370m was +NZ$40m
ahead of our expectations due to a number of small deviations and higher capex as OCA ramps up its build rate materially.
The care suite model: Underappreciated and transformational
We believe OCA's pioneering care suite model is underappreciated by the market. General cost increases and funding pressures have
muddied the waters with regards to what we consider a transformational change for OCA over the last two to three years. DMF and
resale gains for care suites have increased by a factor of 2x and now equal ~50% of OCA's annuity EBITDA. This compares to our
estimate of <10% for the other three operators on average. This earnings stream has high cash conversion and low exposure to both
government funding and house prices; the two biggest long terms risks in the sector. We think this warrants a higher multiple.
OCA one of our most preferred stocks in the NZ market
We consider OCA one of the most attractive risk rewards across NZ. OCA is valued on ~10x 12m forward PE, 0.75x book value and
19x EV/annuity EBITDA, a 25-40% discount to its three listed peers. We have some sympathy for the market's impatience with OCA's
transformation. OCA reported similar earnings in FY22 as it did in FY18 despite investing >NZ$700m in the business. Looking ahead,
we believe OCA will deliver sector leading growth and cash conversion. OCA's earnings is substantially less geared to house prices,
this has hurt OCA over the last few years. With house prices in retreat we believe it will be OCA's time to shine.

[justakiwi]

For those who still seem unable able to comprehend the importance of the care arm of this business, read this and let it sink in (underline is mine)

The care suite model: Underappreciated and transformational
We believe OCA's pioneering care suite model is underappreciated by the market.