OCA - Oceania Group - retirement villages

[Beagle]

Many thanks Greekwatchdog - Excerpt

Figure 1. Summary of sector ratings and valuation
Company Ticker Current price (NZ$) Target price (NZ$)
Oceania Healthcare OCA 1.53 1.90 OUTPERFORM
Arvida ARV 2.10 2.50 OUTPERFORM
Summerset SUM 15.40 13.85 NEUTRAL
Ryman Healthcare RYM 15.61 12.60 UNDERPERFORM

Very interesting price targets for all 4 companies in this sector highlighted above.

[Baa_Baa]

Thanks for that. I like the target for OCA!

Thanks also GWD, so that's a 24.2% SP increase forecast. Although we haven't hit their March target of $1.70 yet, let alone their April target $1.80, they're bullish enough to retain Outperform rating and uplift the target to $1.90.

Happy days ahead.

[Gunner]

Wonder if the builders / contractors share in the pain of any damages

They will if they not meet the completion date in the contract unless there is an extension of time. Covid lockdown will extend the contract duration of the project for example as it is not the fault of the contractor. The will likely be fixed rates in the contract and the contractor will have to manage the cost fluctuations on that and depending on the clauses of the contract, this could be a problem for them. There will likely be liquidated damages on the contractors where they'll pay a fee per day if they miss the completion date. This is how OCA will recover costs due to any delays.

[winner69]

They will if they not meet the completion date in the contract unless there is an extension of time. Covid lockdown will extend the contract duration of the project for example as it is not the fault of the contractor. The will likely be fixed rates in the contract and the contractor will have to manage the cost fluctuations on that and depending on the clauses of the contract, this could be a problem for them. There will likely be liquidated damages on the contractors where they'll pay a fee per day if they miss the completion date. This is how OCA will recover costs due to any delays.

So builders / contractors could go broke?

Could this affect the ability to get future work done on time and at present a reasonable cost

[Gunner]

So builders / contractors could go broke?

Could this affect the ability to get future work done on time and at present a reasonable cost

No not necessarily, every contract is different. It depends on what clauses and tags (clause exemptions/ clarifications) the contractor has put into their original quote and subsequent contract. If depends how much risk they have taken on. NZ is small industry so a pragmatic approach is taken to work through issues together (more so than overseas) but contract is still the contract. OCA would likely not want to burn good contractors that they may use in the future but then also they also have an obligation to make money. A good contractor would put Covid clauses in about delay, price increase and supply issues. If they have then OCA would be carrying the risk.

[Dotbond]

Being in the building industry myself, playing hardball with contractors and subbies in this climate is also shooting yourself in the foot. They ain't growing on trees and if Covid restrictions or supply chain issues are the reason for delays then that needs to be taken into consideration before OCA start laying down the law.

[thegreatestben]

Yeah I've got two houses being built currently under fixed price contracts, had a few impacts due to material supply. Can't get the timber weatherboards in fixed length finger jointed so I went with premium clears in varied lengths. This cost me 14K extra just for cladding. Would rather it get clad than sit in the rain. Bit concerned how it's all going to go, slabs were poured the week before Level 4.

[Beagle]

To the best of my knowledge OCA use large construction companies who have extensive experience in building high quality projects and a reputation for building them on time and on budget. I think they have used https://www.naylorlove.co.nz/our-projects/ on some of their projects.

These companies are well experienced at dealing with all sorts of challenges thrown up in building complex structures.

Much is being made by some of the current challenges but while there may be some impact on the timing of delivery with the Covid lockdown I am confident that this is immaterial to OCA on a valuation basis as customers can expect to pay more in the future for the security and peace of mind of living in a safe, well supported retirement community and they're well capable of affording it with the way house prices have rapidly escalated. If it costs significantly more to build units in the future once current fixed price contracts have run their course I am confident this will be reflected in both the asking price for new units in the future and resale prices for all existing stock.

Its therefore actually quite easy to make a strong case that escalating construction costs are a significant net positive for OCA as not only will they be fully recovered on new units sold this will significantly add to the resale profits of all existing stock when they're resold. I maintain OCA is therefore an excellent inflation proof stock where escalating inflation pressures will add quite significantly to earnings in future years. My target price one year from now is $2.

[mike2020]

Mr B that is my target by late January. I watched a the first online auctions post lockdown in Christchurch this morning. One resale, within 6 months, no changes at all +15%. Everything sold.
My prediction is another round of yelling at the (housing) dog by Cindy and Grant after covid settles.

[Valiant]

Some good points Gunner. I will add that it's in the best interest for the Contractor and Principal to have risks allocated to the party best placed to manage them. In the case of Covid, this is a govt mandate and not something the Principal has instigated - any EoT or variation claim from a contractor should be assessed on an open book basis whereby the contractor is paid for "costs incurred". they should be in a position to recover costs due to the impacts of covid but should not expect to be profiting if a site is shutdown under AL4 i.e. off-site over heads and profit do not necessarily apply.

This is the general approach I am (and the company I work for) applying across projects we manage nationally which are NZS3910 /3916 based.