OCA - Oceania Group - retirement villages

[Bjauck]

The More Things Change, the More They Remain the Same,

Interest rates fall: average asset prices increase. That is courtesy of government and macro circumstances. Kiwi households have been making far more money (untaxed) from their houses than from employment/self-employment (taxed). Of course this falling interest rate windfall money from the houses accrues to landlords in many cases.

[Maverick]

I've recently taken a deliberate step away from reading any ST in order to do some personal thinking and focus about OCA, other NZX companies , inflation, housing and drivers of the massive NZSX bull run and basically where I think things may go from here. All done without the distractions (usually of an immediate nature) of daily forum chat. It has been a healthy exercise.

In particular I wanted to re-evaluate OCA to see if any “rose coloured glasses” stuff has crept in. Certainly for my portfolio, as I'm ridiculously overweight from a conventional view point. As part of that exercise I've made a list of what has actually changed in 3 years which some will find of interest.

Good stuff.
-MAQ has long sold out and the long tail of loose shares squared away.
-NAV had risen from $1.04 to $1.28
-Embedded value increased from $170m to $259m
-Proven desire to expand already demonstrated by 2 large/quality acquisitions.
-A bedded down capital raise of circa $100m partially for future acquisition purposes.
-NZ has proven an increasing appetite for these villages from observing all sector participants' results. Demand seems even stronger than anticipated.
-NZ HPI has risen dramatically over 3 years, $$$ tons yet to wash through to the bottom line.
-Covid risk has arrived, been well controlled and now fading rapidly.
-OCA Cares suite model has been proven now with waiting lists after a few years of operation per delivery and is now de-risked. Resale prices are now increasing disproportionately faster.
-Rates and prices of high end apartment new sales are now well established and proven.
-Deconstruction of existing sites where revenue is lost to build new care suite wings at the loss of existing business are now all complete. All future caresuite builds will be non-disruptive.
-Waimarie, arguably NZs most stunning site, has been consented and construction is well underway.
-All deliveries have been on time and on budget, without missing a single deadline.
-All 4 Analysts now have a good handle on the company and all projecting circa 20% YOY underlying growth from FY21.
-All 4 analysts are recommending a “buy”. It is rare that all 4 agree simultaneously on a stock, I do not currently know of any others.
-We have 4 years of historical data now which paints a clearer picture and patterns are becoming quite visible.
-Directors continue to buy up truck loads of shares whenever they are permitted..

Bad stuff.
Underlying profit has gone nowhere for 4 years in a row.
Build rates have only averaged 222 units p/a.

Neutral.
-Change of balance date
-lost Earl but offset by gaining Brent as CEO (Actually slightly positive for this chapter IMO).
-Staff costs are increasing but are offset with increased occupancy rates and DHB pay rises.
-Staff are getting harder to find but this is temporary.

In summary;
From this list we have a long and fabulous list of achievements offset by one minor issue …..NO UNDERLYING PROFIT GROWTH IN 4 YEARS !(despite growth in assets and future payments).
The issue of only 222 annual new builds is likely to ramp up IMO as land has been cleared for potential ramped up development. Its no real biggie anyway if they don't.

The value one chooses to place on the company comes squarely down to growth expectations of the company, at this point it is subjective as it is beyond most people's available time to calculate accurately.
Historical evidence says there is no growth on the bottom line. I say from my exhaustive spreadsheets that I can clearly see very solid growth within the numbers coming,( my numbers for FY2021 were finally proven accurate after some previous mistakes always resulting in more lessons learned over the 3 years) the 4 current analysts say it's coming too. We all agree between us that the underlying profit growth rate of circa 20% p/a starting this FY, already underway, but at this point it's all just theory.

I have concluded that I'm not mad, nor is Greg T, to hold on to such much of this stock. For me it remains a very safe and high conviction stock and as a result will not be selling down any. I maintain my early SP target of about $1.85-$1.90 in 10 months , just after the FY22 result.

With only 3.5 months to go for the next HY result it's not long for one to wait if they just want proof of these foretold profit rises first as I and the analysts are saying they will. The downside will possibly only be an extra 10-15 cent purchase cost to the share price.

[forest]

Great post Maverick, thanks for sharing.

[thegreatestben]

Excellent summary, I also feel there is more good than bad with OCA. Sticking with it.

[Waltzing]

Property prices for land appear to be going sky high near beaches in population centres. Those luxury suites could start going for even bigger dollars and who ever has got the land bank will benefit.

SUM took off and maybe they have locations else these retirement companies will be buying on the fringes and no views of those blue waves.

Does OCA have any sand to sea locations in the bank because a section in point chev just went sky high.

Everyone will have seen this even if your following the 10 year early but most NZ will be looking at this.

https://www.nzherald.co.nz/nz/auckla...32T6LEIHNPJZ4/

[Bjauck]

Thanks maverick. I guess patience is needed with underlying profit - the Covid effect may have impacted Oceania more than some others?

[percy]

Great post Maverick, thanks for sharing.

And thanks from me too.Excellent post.

[Beau]

Thanks for putting in your time and sharing Maverick

[Greekwatchdog]

Thanks Maverick for your extensive time spent reviewing OCA and sharing your thoughts.

[Curly]

Ditto Mav man. Most helpful post.