OCA - Oceania Group - retirement villages

[winner69]

Only 5,006 volume on ASX …huge v daily average

But then they first trade since mid-Jan

[ValueNZ]

The issue is these 'extreme rates' of return are largely within the company. In order for a shareholder to get their money out they have to sell their shares 'on market'. And currently a nice villa completed for $600,000 in real dollar costs in 2021, is valued by NZX investors at just $300k (because OCA shares are trading at half their asset backing). For those investors who participated in the capital raise in 2021, every dollar of real cash they subscribed can now be withdrawn by them via the NZX at a rate of just 50c. They have exchanged real cash for stake in a villa that has halved in value, at the valuation hand of Mr Market.

Now that villa is still owned by OCA and would probably cost more than $600k to build today. But there is no way for shareholders to recover that invested money to that degree. Even if the villa was now worth $660k as an equivalent new build, by selling OCA shares today, shareholders will only get $330k of value. By any measure, putting $600k in to get $330k out is not good business. I fear OCA investors are mesmerized by the glory days of 2021 and are just waiting for their shares to return to their former glory price at net asset backing. Hence they will realise the full value of their investment in OCA with all development property fully reflected in the share price. I put it to those investors that OCA selling at net asset backing was an aberration, due to the impossibly low interest rates engineered by the reserve bank at the time. Those interest rates will never be seen again. So our hapless investors who took part in that capital raise will have to wait another 20 years for construction costs to double from 2021 costings. And in twenty years time they will at last, via selling shares on the NZX, be able to get their capital back from all those years ago previously, when they subscribed for that 2021 OCA share issue.

SNOOPY

You do understand Mr Market as an analogy right?

"Let us close this section with something in the nature of a parable. Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position"


I ask you SNOOPY are you letting Mr Market's daily communication determine your value of OCA? Because it sure seems that way.

"Putting $600k in to get $330k out is not good business", yeah well no kidding. But that's only if you bought in 2021 and are selling shares today. However, equally you can buy that equity ownership off shareholders at a discount to what was put into the business recently, which following the same logic is good business.

The reality is it's only good business if you've bought the shares for less than their discounted cash flows. It has nothing to do with the discount to NTA.

[Baa_Baa]

With Snoopy you think you're dealing with someone clever and thoughtful who does lots of careful analysis but in reality it's all just wide of the mark short circuited logic that goes nowhere.

I agree that Snoopy is very clever and thoughtful, very much so, perhaps the most respected fundamental analyst here on Sharetrader, undeniably, unashamedly and with uncommon humility and tolerance, exceptionally well versed in his analysis of the company's that he is invested in, and that combined with a knack for the numbers and statistics.

Not so much though for the occasional times he strays into the unknown company's, but still kudos as it means he is either interested to know more, or just wants to temper the enthusiasm of the proponents, perhaps both.

What he has done here is though is wind up the value investors with a very tight scenario that is highly unlikely and eloquently argued his point within the bounds of that tight scenario, such that it is almost impossible to disagree with, except that the scenario is so tight and so unlikely, that it is almost implausible.

[mistaTea]

Bow wow wow yippie yo yippie yay

Is it just all the listed retirement companies, or do the share prices of these retirement companies match the share price trends of other property companies so closely that one line is obscured by the others?

Given the difference in how the assets are funded does this prove Mr Market isn't quite as onto it as you're led to believe?

Just want to clarify something.

Does this post make you ‘Lil Bow Wow?

Snoopy must be The Dogfather.

I could live with that.

[mistaTea]

Just want to clarify something.

Does this post make you ‘Lil Bow Wow?

Snoopy must be The Dogfather.

I could live with that.

And I am just teasing before you throw a haymaker at me.

That post was funny but I have had snoops damn song in my head ever since.

[Lego_Man]

The prospects of interest rate cuts in short order is getting increasingly diminished. Bad data today, from the RBNZ's point of view.

All things equal domestic asset prices will stay under pressure for longer.

[mistaTea]

The prospects of interest rate cuts in short order is getting increasingly diminished. Bad data today, from the RBNZ's point of view.

All things equal domestic asset prices will stay under pressure for longer.

Aye, and with a bunch more developers going bust or on the verge of…

Just so expensive to build now, and high interest rates acting like gravity on asset prices, reducing demand etc.

You can get a sense of why retirement villages are priced in a way that may appear statistically low.

[Lego_Man]

Yep the current squeeze is sowing the seeds of the future boom, as it always has. The strong hands will survive but tough times in the interim.

[Snoopy]

You do understand Mr Market as an analogy right?

"Let us close this section with something in the nature of a parable. Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position"

Excellent. You have gone back to the original text. Such rigour will serve you well. But I think the downstream fall out from that Mr Market parable is that most of the time Mr Market is pretty accurate with his valuations. You really have to hunt for situations where Mr Market has got it wrong. I think Buffett is on record as saying that he is happy if he only gets one or two great opportunities a year where he can take advantage of Mr Market.

I ask you SNOOPY are you letting Mr Market's daily communication determine your value of OCA? Because it sure seems that way.

Truth be told I have really only become interested in the wider property sector for the last couple of years, since those share prices have come under pressure. Given the RV shares and OCA in particular have been bobbling long an imagined bottom on the share price graph for a year now, I was wondering how such a great investment opportunity could remain available to so many investors for so long. It seems to me, however unpalatable this may seem to those up to their eyeballs in OCA shares, that one explanation is that what we have now is 'the new normal'. There certainly seems to have been a change in the attitude of the banks as to what capital ratios and cashflow ratios are deemed acceptable, even though in the case of OCA, the banks do not want OCA to disclose to shareholders what these new updated bank covenants are. I hasten to add that if what we see today from Mr Market is the new normal, this doesn't necessarily torpedo OCA as a good investment prospect. It just means that some of the hoped for recovery returns, based on future multiple expansion, may be less than existing investors think.

The lightbulb moment for me came when I read Lyall Taylor's piece on property, which I paraphrased into the New Zealand context here.
https://www.sharetrader.co.nz/showth...=1#post1036433

Ferg replied at the time that the likes OCA is using 'discount rates' to measure the values of future cashflows, where as those other property companies that were using 'capitalisation rates'. So Lyall's spiel is not applicable to retirement villages. I am afraid I do not fully buy that argument. All of these valuations come down to cashflows anyway. So whether you choose to:

a/ discount the cashflows to get a representative present day earnings stream or
b/ capitalise them to get a representative present day asset value,

These two techniques are really two sides of the same cashflow coin (is how I see things anyway). I think Lyall's argument makes sense and is a good explanation as to why Mr Market, outside of the near zero interest rates artificially impose d on us because of Covid-19, will never again value these RV assets at what some see as a 'Covid normal' which was a once in a generation aberration.

"Putting $600k in to get $330k out is not good business", yeah well no kidding. But that's only if you bought in 2021 and are selling shares today.

Agreed

However, equally you can buy that equity ownership off shareholders at a discount to what was put into the business recently, which following the same logic is good business.

Yes, except you are assuming that we are in a transitionary state, that will see interest rates fall, back to a new normal based on 2020/2021 interest rates and that in turn will lead to a significant market re-rating of the likes of OCA's share price. I agree that interest rates will likely fall. But what if the 'new normal' sees interest rates fall from 6% to 5%, not 6% to 3%?

SNOOPY

[Snoopy]

I agree that Snoopy is very clever and thoughtful, very much so, perhaps the most respected fundamental analyst here on Sharetrader, undeniably, unashamedly and with uncommon humility and tolerance, exceptionally well versed in his analysis of the company's that he is invested in, and that combined with a knack for the numbers and statistics.

Not so much though for the occasional times he strays into the unknown company's, but still kudos as it means he is either interested to know more, or just wants to temper the enthusiasm of the proponents, perhaps both.

What he has done here is though is wind up the value investors with a very tight scenario that is highly unlikely and eloquently argued his point within the bounds of that tight scenario, such that it is almost impossible to disagree with, except that the scenario is so tight and so unlikely, that it is almost implausible.

What is so implausible about a small cash issue at OCA though? I mean dividends have already been stopped. Surely a small cash issue is only one step away?

SNOOPY