OCA - Oceania Group - retirement villages

[winner69]

Average expectation of economists is for 6-9% reduction in real estate prices in the year ahead. Taking the mid point of 7.5% has an impact on OCA's portfolio of as at 31 December 2019 $1,496m of $112.2m, 18.25 cps

If we assume average real estate values went up 2.5% in the period from 31 December 2019 to the end of February 2020, before the Covid 19 became a worldwide pandemic, NTA + 2020G - V (the real estate market was very strong in January AND February 2020 so this looks like a reasonable assumption) we get a net forecast adjustment of ~ 5% to real estate prices. This works out to a net adjustment of 12.2 cpsa takes NTA + 2020G-V down to 89 cents per share.
Given the massive uncertainty of how this Covid 19 disease will play out I think the shares are fairly priced at 83 cents.
At this point my assessment is that at 83 cents OCA is trading on about a 6-7% discount to Covid 19 adjusted NTA which seems fair and reasonable.

By comparison I estimate MET's NTA + 2020G - V at $6.16 and at $4 they are trading at a 35% discount to adjusted NTA. MET looks considerably better value to me than OCA. All other companies in this sector look overpriced to me, RYM dramatically so and SUM also heavily overpriced.

I’ve warned you in the past about believing those ‘expectations of economists’. Jeez a 7.5% decline in property prices is just the start.

I think you’ll agree the single biggest determinant in terms of driving the property market down is unemployment...yes?

This is no GFC impact ...that only really affected a few ....this virus thing is going to affect everybody. Even you say you’ve never seen anything like it before.

I’d model 15% decline in property prices as a start ....more than 15% likely

What does that do the COVID adjusted NTA for OCA

[Beagle]

64.78 cents. I think a lot of ex pats will come home...that's what I am hearing from the top brass at Bayley's. If we can get on top of this virus here we could see a huge number of ex pat's come back and live here. Who knows exactly what the future holds, certainly not me but I do know there's far better value with MET shares than OCA.

[Food4Thought]

After 2 weeks of ENORMOUS effort to figure out what went wrong between my estimate and actual HY results I've made it to the end of the rainbow. In my defence I always stated my prediction seemed too good to be true but I couldn't see where my workings might be wrong... well now I have.
There where 3 key mistakes/ assumptions I made which may be of interest to others here;
1. The emptying of beds at Lady allum has started ( I thought it was programmed further out). This obviously hurts revenue while maintaining staff costs. This is not a problem per se , just my own anticipated timing of it.
2. Here is the biggie …..I thought ILU new sales would be linear. In fact new ILU sales happen mostly in HY2. I've learned old clients don't venture out in the cold. This explains why the HY2 result is always MUCH stronger. ( I assumed it was always just a delivery, timing thing)So the large Sands and Meadowbank new sales margins ( and large DMFs thereafter)won't really show until the upcoming HY2.
3. On the negative side, “Depreciation” is rapidly rising and will get much greater as they deliver more new stuff. At least this is a non cash expense.

I have spent several weeks on it now and projected out the full pipeline development to completion and FWIW I see care profit declining substantially further for one more year before swinging back upwards as care suits exponentially fill up. These new care suit sales , then DMFs, will increasingly overcompensate for future care beds being decommissioned.


IMO is that OCA’ s reconstruction model is too complex for anyone with a real day job to apply the required focus to fully understand it ( those in meaningful employment can always just take Earls word that things are hunky dory, or otherwise follow the directors lead who are substantially buying up lately). OCAs current overhaul programme is just a beast with many moving parts and with many combinations of deconstruction,revamping, rebuilding methods which all take a lot of separate consideration.
It's not possible to communicate how this complex model works in a chat room using only a few paragraphs at a time, even this post is too long.
One really needs visuals, laser pointers and a break for morning tea to get how this will most likely play out.
For anybody less than “advanced “ in NZ retirement stocks I recommend studying SUM instead. It's much easier to understand buying a paddock and building “monopoly” type units. They are obviously proving an extremely successful model too with lots of history.


So with what ever credibility I have left, my revised prediction for FY20 is underlying 60-61m.
And beyond that it just goes from strength to strength so I'm a very happy long term holder. I wish I had more moola to buy even more in the current opportunity Maccas has just presented us.

Very good post Mav. Is it time yet for some revision?

[Maverick]

Very good post Mav. Is it time yet for some revision?

Hi Foodie, good to see you digging up old posts, obviously you are doing some thinking. Funny you ask for a revised profit , I was doing it just yesterday.


Firstly my overall NZ assumptions (which affect OCA assumptions) are as follows;
-Residential property prices won't fall much and will recover soon enough.
- Retirement villages will not be wiped out or be seen as any less desirable.
-NZ people will go straight back to their old ways, except international travel, when released.
-NZ economy will get through this just fine , except of course international tourism or any business already struggling pre-virus.

So I'm pretty positive about the whole thing, much more than what I`m reading of most others points of view. I`ve been through enough crisis`s and serious broadsides to know everything washes into history and whats always emerges is a better, improved model. Respecting that some will be really suffering, overall I actually see NZ doing “fine and dandy” in a year or two, especially property and equities.( imagine equities with property )


My OCA spreadsheet changes are as follows:
-Development will be delayed by only 1 month. I'm expecting construction will recommence at full speed on Thursday.
-Care suites are operating and selling/reselling at normal levels through the lock-down.
-new sales and resales of apartments and villas are down in volume, not prices, for the HY by 25%.
-staffing costs will be up slightly but not much.


Sooooo...what's the magic number?….I was projecting about 60m underlying but am now expecting 55m (9 cps) . That “feels “ too high to me but that's what the spreadsheets pop out.


So at worst I am expecting around last years income of 50m but hoping for 55m and the divi will be maintained.


FWIW, I know MET is very popular here right now , and I've recently run a ruler over it, and do see it at the same excellent buying value as OCA at current share prices. However I still strongly prefer OCA over the LONGER TERM due to its stronger growth pipeline and I really love the care suite model of OCA.

[Bjauck]

64.78 cents. I think a lot of ex pats will come home...that's what I am hearing from the top brass at Bayley's. If we can get on top of this virus here we could see a huge number of ex pat's come back and live here. Who knows exactly what the future holds, certainly not me but I do know there's far better value with MET shares than OCA.

Returning expats could add to NZ's forecast unemployment? Would returning ex-pats (especially those from Aussie on special visas) be the wealthier ex-pats who could afford a house deposit? Anyway they could be balanced out by NZ based ex-pats leaving. Especially Asian NZ residents returning to a recovering Asia. NZ has a lot of ex pats from other countries residing here too. NZ's economy may be affected to the same extent as other countries - or possibly worse owing to our a large tourism sector.

The Covid recession may also result in greater protectionism and a less global economy as various countries may decide that building up domestic industries and domestic supply sources may be of benefit in future epidemics or crises. That could be of a disadvantage for NZ's open economy. During covid various measures were introduced to divert for domestic consumption various items that had been destined for export. Many countries will want to take steps to protect against that.

https://www.nzherald.co.nz/business/...ectid=12324783

[macduffy]

Appreciate your thoughts, Maverick, and agree with your longer term conclusion that OCA will prove to be a good investment. I don't share your optimism regarding the short term however. I think the real estate market will take rather longer to recover, both in activity and price levels and that economic activity will recover only slowly. I wouldn't hazard a guess as to near term profitability - too many variables - but that goes for just about any listed company these days.

[Raz]

Returning expats could add to NZ's forecast unemployment? Would returning ex-pats (especially those from Aussie on special visas) be the wealthier ex-pats who could afford a house deposit? Anyway they could be balanced out by NZ based ex-pats leaving. Especially Asian NZ residents returning to a recovering Asia. NZ has a lot of ex pats from other countries residing here too. NZ's economy may be affected to the same extent as other countries - or possibly worse owing to our a large tourism sector.

The Covid recession may also result in greater protectionism and a less global economy as various countries may decide that building up domestic industries and domestic supply sources may be of benefit in future epidemics or crises. That could be of a disadvantage for NZ's open economy. During covid various measures were introduced to divert for domestic consumption various items that had been destined for export. Many countries will want to take steps to protect against that.

https://www.nzherald.co.nz/business/...ectid=12324783

I do note the main management consulting companies are peddling changes to supply change management which will mean less international trade.

[Curly]

Beagle: getting a bit tired of your pumping of MET on this thread. You are obviously loaded up on MET. Prospects of OCA reaching $1.60 from here far greater than MET reaching $8.20 me thinks?

[Beagle]

Hi Foodie, good to see you digging up old posts, obviously you are doing some thinking. Funny you ask for a revised profit , I was doing it just yesterday.


Firstly my overall NZ assumptions (which affect OCA assumptions) are as follows;
-Residential property prices won't fall much and will recover soon enough.
- Retirement villages will not be wiped out or be seen as any less desirable.
-NZ people will go straight back to their old ways, except international travel, when released.
-NZ economy will get through this just fine , except of course international tourism or any business already struggling pre-virus.

So I'm pretty positive about the whole thing, much more than what I`m reading of most others points of view. I`ve been through enough crisis`s and serious broadsides to know everything washes into history and whats always emerges is a better, improved model. Respecting that some will be really suffering, overall I actually see NZ doing “fine and dandy” in a year or two, especially property and equities.( imagine equities with property )


My OCA spreadsheet changes are as follows:
-Development will be delayed by only 1 month. I'm expecting construction will recommence at full speed on Thursday.
-Care suites are operating and selling/reselling at normal levels through the lock-down.
-new sales and resales of apartments and villas are down in volume, not prices, for the HY by 25%.
-staffing costs will be up slightly but not much.


Sooooo...what's the magic number?….I was projecting about 60m underlying but am now expecting 55m (9 cps) . That “feels “ too high to me but that's what the spreadsheets pop out.


So at worst I am expecting around last years income of 50m but hoping for 55m and the divi will be maintained.


FWIW, I know MET is very popular here right now , and I've recently run a ruler over it, and do see it at the same excellent buying value as OCA at current share prices. However I still strongly prefer OCA over the LONGER TERM due to its stronger growth pipeline and I really love the care suite model of OCA.

Hi Mav me ol mate. Hope you're doing well and that your sanguine view of the effect on the economy is bang on the money. Nobody wants to see deep economic carnage as nobody is a winner from that but I consider some pretty grim economic outcomes are quite likely and we're highly likely to see a material effect on the real estate market. I think a 5-10% reduction in the next 12 months is highly likely. That said provided there's an effective treatment or vaccine we should see a strong rebound starting hopefully sometime next year so I am doing my best to look through this and invest based on FY22 prospects and beyond.
OCA look fair value to me in the 80's, all things considered.

Curly, such a brash opinion from someone who has contributed just 12 posts. People will always compare retirement companies on retirement company threads, its a helpful process and healthy debate that's been going on since Adam was a boy. If you actually made some sound analytical argument to support your opinion I might be more interested in it.

[Curly]

Beagle:
Such a trite response. Gotcha