OCA - Oceania Group - retirement villages

[Beagle]

You are far too kind mate. Everyone needs a bit of luck in their life and I came from a family of very modest means with four kids who could only afford to send one of their children to University. I have always been interested in investment so on a hunch as an optional paper late in my Bachelor of Commerce degree I took investment analysis which was a level three advanced paper and it was the only one of my degree I got an A pass in which I suppose speaks for itself as to where my interests were at an early age.

I remember starting out with a small firm of accountants in Auckland in 1981 and I thought I knew everything. I suppose that's the natural arrogance of youth or perhaps it was just me ? 39 years later I wonder if I really knew anything at all. Back then there was no internet, no email, no forums, nothing. A friend of mine used to keep paper charts on mathematical grid paper and laboured over this every weekend much to the consternation of his girlfriend.
I took quite an interest in those charts, (but wish I had taken more of an interest) because I never really appreciated how valuable technical analysis was until I came on here about a decade ago and thanks to wise words from Hoop and others learned a lot.

I worry a heck of a lot about the disconnect between the markets and the underlying economy. I have never seen anything like it and nobody else has either, (because nobody investing now was investing the last time this happened...yes there was a last time). There is no text book for what's happening here, the size of the stimulus, driving interest rates down to 100 year lows...the market seems to think its a foregone conclusion that we will have a vaccine that's available by 2021. But what if this doesn't happen ?

Overnight the IMF has revised down its global growth for the next year to minus 4.9%...this is the stuff of the making of a depression if we don't get that vaccine.
Coming back to this huge bounce over the last three months after an unprecedented bull market for 11 years to March 2020. Disturbingly there is one precedent for the size of this bounce when the market was so diametrically different to the underlying economy and that was 1929, just before the great depression. Massive stimulus back then pumped the market back up in a very similar way and on a percentage basis even slightly further than what we're experiencing now...before heading dramatically lower over the ensuring several years. There's a very good chance history will repeat if we don't get that vaccine next year so I am extremely cautious of this market.

There are very few stocks I like and I restrict my investments to those that I think will do okay in a recession and can be resilient in a depression. I hope I am wrong, (I will never be so pleased to be) and that we get the vaccine the world desperately needs sooner rather than later or not at all.

OCA will do okay, (much better than okay if we get a vaccine and the world sort of goes back to the way it was, albeit riddled with far more central bank debt). Its a needs based business and those needs are not going away but will only increase as the numbers of old folks needing care steadily increase in the years ahead. The valuation is compelling and is probably still trading at a ~ 25% discount to 2020 NAV, (NAV is different to NTA and includes things such as developments in progress, IP and some other stuff I forget).

We all make mistakes, I am certainly NOT brilliant. At times on this forum I have been far too dogmatic and belligerent...hopefully I have learned a little bit from those mistakes. As little as a couple of weeks ago I thought this wouldn't go under $1 again and topped up some more at that price and yet here we are at 90 cents. My sense is if the market as a whole is choppy and essentially goes sideways from here until we get a resolution to Covid 19, that would be a very satisfactory outcome. I bought OCA for yield which is close to 7% at my average price of around 70 cents. I think OCA can continue to pay ~ 5 cents per share in dividends so its probably one of the best places to hide in this market and is my largest investment position on the NZX.

I have learned a heck of a lot from other contributors to this forum in the last decade.
Finally a note of caution regarding underlying profit for OCA for the year ended 31/5/20. There is no question they have incurred significant extra direct costs running into many millions as a result of Covid 19. There's also the slowdown in their development plans and their inability to sell independent living apartments during the lockdown. I think its best to have really realistic expectations about this years underlying profit. If I have to pick a number I will and I'll estimate $40m underlying profit impacted by about $10-20m (no apologies for such a wide range) Covid 19 effect, i.e. would have been $50-60m without Covid 19.

I'll probably be wrong by a long way...Covid 19 effect could be worse than what I am estimating. Importantly as has been demonstrated by the market's response to RYM's result, the market seems happy to look through what is hopefully a one-off Covid 19 impact and hope for brighter days tomorrow.
I think OCA's business model is far more needs based and therefore resilient than the other retirement companies. Their dividend yield is the best and based on adjusted underlying profit for Covid effect their valuation is comfortably the most compelling. MET are cheap too but who knows how that will play out ? I flipped a coin on that one a while back, (probably just as likely to be correct as any other guess) and the coin said the takeover won't happen and MET should just get back to running their business.

[Panda-NZ-]

We have already averted a depression I think, the second in 20 years. I think emotions play an important role in this. the only thing to fear is fear itself.

As for retirement stocks I'm not really interested anymore since you're dealing with something that uniquely targets the elderly and there is the added risk that property prices will go down in some places as others have said. They are holding up well now though and we may become a desirable place to live.. maybe too desirable as other places don't take action on climate change and have water shortages as a result.

[Bjauck]

No Snoopy its not a concern because one swallow does not a summer make.

Interestingly our Warou - the native self-introduced Welcome Swallow - is non-migratory*. Small flocks often form at the end Summer to feed on insects above the late Summer gossamer on long grasses. So perhaps seeing a small flock of swallows signals the end of the golden weather

*Here in Auckland at least. They may fly further North from more southerly parts in Autumn though.

[winner69]

High mortality rates good for this sector ....wonder what esteemed poster ‘old guy’ or was it ‘newguy’ who did a lot of work on this subject is doing these days ...probably still modelling demographics and turnover of clients in villages.

[Paradox]

The dog is exceptionally highly motivated to get his snout really deep into the financial statements. Just as well seeing as they're so complicated.

Just day 2 of looking into the statements and I already see what you mean. Even getting the number of care beds, suites, and units for the last 4-years is hard as it keeps changing in every report - divesting & restating.....and don't get me started on the other income that appears multiple times, even though some of it is operating income....

[Bjauck]

Auckland house prices are unaffordable. However for many it is the most tax-efficient investment/pension scheme available. So in a low interest environment and with investor housing and owner-occupied housing being the investment/pension vehicle of primary choice for NZers, this severe unaffordability may well continue in my opinion. For many people too the retirement company listings such as OCA could be a more manageable, easier and convenient proxy for direct property ownership.

The NZX listings are few. So many NZ listed companies have shifted to Australia or been taken over by overseas companies. KiwiSaver has no tax advantages. There is little incentive to accumulate a large KiwiSaver balance in preference to investor housing, the annual credit notwithstanding.

[winner69]

Just day 2 of looking into the statements and I already see what you mean. Even getting the number of care beds, suites, and units for the last 4-years is hard as it keeps changing in every report - divesting & restating.....and don't get me started on the other income that appears multiple times, even though some of it is operating income....

Magnificent set of accounts though eh paradox...a thing of beauty

Just do what Beagle does .....’profit’ is change in book value plus dividends...or something like that

But more important forget the financials .....understand the story

[Beagle]

Maybe the new CFO will make the financials' more easily comprehensible this time ?... we live in hope

[Paradox]

Magnificent set of accounts though eh paradox...a thing of beauty

Just do what Beagle does .....’profit’ is change in book value plus dividends...or something like that

But more important forget the financials .....understand the story

I'm trying to do it the hard way and develop my skills in the valuation model based on residual income.

[Paradox]

Maybe the new CFO will make the financials' more easily comprehensible this time ?... we live in hope

CFO was the lead adviser for OCA's IPO and with his investment banking experience in Jarden & Forysth Barr, one could hope he'll deliver what the markets look for...