OCA - Oceania Group - retirement villages

[Maverick]

Thanks Winner for that link, I really appreciate it. I've been looking for that with no success.
My own model underestimated the unexpected increase in finance costs, oddly they ended up paying more on finance at the same time their level of debt reduced.
The other underestimate I made was the substantial rise in corporate costs. Especially as they said last FY that that would be about the ongoing level of costs as it would be steady as she goes from there.
The last error was my misjudging the drop off in resale prices of apartment prices (no biggie as I expect these will bounce around both ways)

As you eluded to Winner about their slow or nil response to shareholders, I have yet to receive a response after contacting them regarding these issues.
Thanks to your link, all the answers are well covered, and their explanations are very acceptable .

It seems obvious now the analysists have all got a really good handle on the company and it is pleasing to see they are happy to "look through" the flat underlying bottom line at the more important numbers underpinning the unfolding story.

Word seems out now peps, OCA is not the misunderstood ugly duckling it once was.

[MauroNZ]

Oceania Healthcare

1H21 Result — Inflection


link
OUTPERFORM

We walk away from OCA's 1H21 result with increased confidence in our view that OCA has reached an earnings inflection point and are on track to double annuity EBITDA from FY20 to FY23. Specifically, we note three positive developments; (1) OCA reported positive free cash flow and reduced net debt from its FY20 result (May year end), the first aged care operator to do so for several years; (2) annuity EBITDA grew by ~+30% versus 2H20 and +20% versus 1H20 – we firmly believe that OCA's earnings have troughed and will continue to grow over the coming years; and (3) we were encouraged by the large proportion (we estimate 80-90%) of delivered care suites that were sold under an ORA versus care beds with an associated premium accommodation charge (PAC). We reiterate our OUTPERFORM rating with an increased target price of NZ$1.70.
What's changed?

• Earnings: Small increase in annuity EBITDA driven predominately by higher resales gains, underlying earnings are largely unchanged (higher resale gains are offset by slightly higher depreciation & amortisation and lower newsale gains)
• Target price: Increased to NZ$1.70 from NZ$1.65

Proving up the care suite model; an important milestone

The biggest risk to our positive view on OCA centres around the so far relatively unproven care suite model whereby care beds are sold under an ORA. The care ORA model improve the economics of aged care meaningfully for two reasons. Firstly, and most importantly, it reduces the cash drag on growth. The ability to sell care suites, not just independent living units, implies a cash neutral or even cash positive development (growth). Secondly, it improves the profitability of care even with low positive house price inflation. OCA's 1H21 result was encouraging on both fronts as OCA was free cash flow positive for the first time in several years and our estimate of care annuity earnings grew ~+30% versus 1H20, a change in tack following a period of decline across the sector but particularly in the case of OCA.
1H21 reaffirms our positive view

OCA's 1H21 result delivered on our expectations and reaffirmed our positive view given; (1) valuation metrics remain undemanding despite its recent strong share price performance. Trading on 15x P/E and ~22x EV/Annuity EBITDA on our FY22 forecasts, OCA continues to be valued at a significant discount to its larger peers despite, (2) us forecasting it has the fastest annuity EBITDA growth in the sector over the next three years, predominately driven by the frequent recycling of (deferred management fees) DMF and resales gains from the care suite product and, (3) it has the lowest cash drag in the sector, over the past few years the sector has been characterised by rising debt levels as capital recycling has become harder. OCA reported a net debt decline in 1H21 and was free cash flow positive for the first time in several years, a rare occurrence in the aged care sector.

Aaron Ibbotson CFA
aaron.ibbotson@forsythbarr.co.nz
+64 9 368 0024

Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124

Thanks for sharing it. First time I read something from them, I like it how clearly explained is. I think better explained than Craigs.

[winner69]

Word seems out now peps, OCA is not the misunderstood ugly duckling it once was.

Nothing truer - OCA the star of the sector in January with its share price up 9%

ARV +0% RYM +2.4% and SUM -3% by comparison - NZX50 +0.3%

Go you little beauty - can't have too many Oceania they say (but that saying doesn't apply to diversification believers)

[winner69]

The much publicised Sharetrader Top 5 not off to a good start in 2021 -- negative after first month

Only 1 of the 5 returning positive and that's OCA with its +9%

Wisdom of crowds not always a good guide but at least OCA is doing it's thing

[Beagle]

Others have fully covered this and there's not much to add other than the result was slightly below my expectations and the main culprit was ongoing higher than expected human resources costs which have shown a surprisingly high CAGR since OCA listed. It could be their Achilles heel going forward. Shares are about fair value now in my opinion considering ongoing Covid risk. Target price $1.80 - $2.00 one year hence.
The key risk I see is in navigating the covid risk and a successful vaccine roll-out. Other than this obvious risk the outlook looks strong and very positive. Very happy holder.

[Pegasus2000]

Thanks Beagle. Welcome back!

[peat]

fair value means Beagle will be selling guys you know that right ? lol

I went full strength plus a third at 1.43 but have reduced now back to one standard position. Reduced dividend means need to work it harder!

[Joh13]

I wonder if we could start to see PE multiples in excess of the 18-20 and move further towards the likes of Sum & Rym PE. Obviously a few more years of solid growth would be needed to justify those types of multiples and gain the trust of the investing public, but it seems OCA and ARV are heading in the right direction.

[Beagle]

I wonder if we could start to see PE multiples in excess of the 18-20 and move further towards the likes of Sum & Rym PE. Obviously a few more years of solid growth would be needed to justify those types of multiples and gain the trust of the investing public, but it seems OCA and ARV are heading in the right direction.

You must be telepathic. I have been reflecting on exactly that over the weekend and reached exactly the same conclusion.

If we see strong and reliable growth in OCA's eps in the years ahead, (one broker has FY26 estimated at 19 cps) we could see a PE in the mid 20's applied to that multiple and given the market is always forward looking that opens up the prospect of 25 times 19 cents ($4.75) being recognized as early as 2025.

[winner69]

You must be telepathic. I have been reflecting on exactly that over the weekend and reached exactly the same conclusion.

If we see strong and reliable growth in OCA's eps in the years ahead, (one broker has FY26 estimated at 19 cps) we could see a PE in the mid 20's applied to that multiple and given the market is always forward looking that opens up the prospect of 25 times 19 cents ($4.75) being recognized as early as 2025.

Pretty cool - 30% pa plus capital gains and dividends great return

And that's with not much of a market rerate - PE about 20 now to 25 in 2025 not much of a step up

And I'll l look forward to SUM being over 40 bucks