OCA - Oceania Group - retirement villages

[winner69]

Maybe this person with amazing credentials is going to sort out care and make it more efficient (ie not so costly)

Chief Nurse appointment
http://nzx-prod-s7fsd7f98s.s3-websit...073/307805.pdf

[couta1]

Maybe this person with amazing credentials is going to sort out care and make it more efficient (ie not so costly)

Chief Nurse appointment
https://quoteapi.com/resources/da986...l_Strategy.pdf

I'm afraid to say it's going to be exactly the opposite but Mum's the word from me.

[Blue Skies]

Maybe time to bring this up again. Japans R&D of robotics being driven by demographics, the rapidly ageing population. Japan's govt keen & residents seem happy too.

https://www.latimes.com/world-nation...for-healthcare

[Beagle]

Beagle, just wondering, how would you see the development of the age care market in NZ? It sounds like that (in your view) even companies like OCA won't be able to recover the high cost for caring for people despite them looking after the better off part of the population?

Lets face it - the only reason SUM looks better in your books is because it hardly provides any care. In a scenario where old people care becomes fast uneconomical investors will quickly pull out of this market. Does this mean that in your view there will be no market for private care, but the state will have to chip in to look after a rapidly increasing old population?

I think we all know how state care for everybody would look like. Is this what you envisage for New Zealand or will there be still a lucrative market for well off people in need of care, which OCA would be well placed to occupy?

Hi BP,

There's no question aged care is under funded and the traditional model that still comprises the bulk of OCA's business model does not give an acceptable return on capital invested. Earl has admitted as much and said that no new facilities are being built relying solely on Govt funding as the returns are inadequate. I don't think this problem is going to improve in the years ahead with a rapidly aging population. My contention is that companies that focus on late stage intense care as their core business model, no matter how its funded whether through Govt funding, occupation right agreement or a combination thereof will underperform the sector in general due to the natural disadvantage they have with high level's of staff. OCA will be viable but will underperform the sector over time in my opinion.

Your contention that SUM hardly provide any care is quite incorrect. The vast majority of their villages provide high level's of care through to hospital level but they don't focus on this as their primary business model, its simply a balanced part of their continuum of care model. They don't make much money out of care, never have and probably never will but because its a balanced part of what they do there's plenty of profit elsewhere. https://www.summerset.co.nz/living-a...port/overview/
Their business model really works, the proof is in the ongoing strong earnings growth over many years.https://www.summerset.co.nz/why-choo...set-different/ The acid test for me is their growth rate. You can debate this whole thing for ever and a day but SUM's results speak for themselves.
They have two senior well respected doctor's on the board and believe me they are fully cognisant of the need to provide advanced care as a balanced part of what they do.

Ryman set the benchmark for the continuum of care model and their model works very well and they're priced for absolute perfection and growing quite slowly now.
MET have found that focusing on independent living doesn't work very well as residents expect more and are changing their business model more toward that of SUM.

I will leave trader Jackson to comment on where Arvida's model fits into all this but I note their single digit underlying earnings growth and PE in the very late teens and those are not metrics that get me especially enthusiastic.

Late stage care is not lucrative for anyone no matter how you slice and dice it, that's how I see it.

With MET soon to disappear there are only 3 left that have a balanced product offer.

ARV on a forward PE of about 19 growing on average in the late single digits eps per annum
RYM on a forward PE of about 31 growing on average at about 14% per annum
SUM on a forward PE of about 14.5 growing on average at 37% per annum. (Perfectly obvious that I favour these metrics)

My contention is than any of the above is a better choice because they don't face the inherent disadvantage of having their entire business model focused on very late stage care with all the expensive wages and salaries that involves. Over time I expect all three above to continue to outperform OCA.

I acknowledge OCA sell independent living apartments but their focus is definitely toward the more elderly end of the retirement spectrum and meeting their needs and the cost of doing that is the handbrake on their earnings that hurts them on an ongoing systemic basis in my opinion.

Revenue and costs continue to deteriorate...most of the improvement in underlying profit is tax based and its a very poor quality result in that respect.
Honestly I think the current half year result is very disappointing and nothing in there makes me think its a good investment opportunity.

Originally there was a six year plan to change from the traditional Govt funded model to get to 60 / 40 new occupation right agreement v old model.
IIRC they're about 4 years away from getting to that. I think they need to move to a 100% ORA model and that may take them a decade. They could have a good business model then depending if they can get a lot more discipline around their costs.

[winner69]

Sad as it may be care of the old in care facilities will always be ‘underfunded’. That’s how governments think these days

For the likes of the big outfits it eventually will have to be a case of looking after those individuals who can afford what they wish to charge over and above any state subsidies (and they probably will become even more ‘means tested’).

As BP said this is no problem for the likes of the listed companies - there will always be enough customers for them if they balance demand (for the better off)/and supply.

[Baa_Baa]

Very interesting discussion, thanks all. Can't and won't dispute the expert analysis of the present and probable short-medium term fundamentals.

For me who has some SUM already at $5.44 and $5.70 buying the recent doldrums, I think it's over cooked on-market now and am positioning for a relax/exit if SP weakness creeps in. Despite the compelling fundamentals explained in detail here, it's too much imo to have run up $3-4 in a few months and expect it to continue unabated, so for me it's a big winner already and hence I'll take those winnings at the first confirmed sign of weakness. I do TA, so timing is everything, whether getting in or out.

OCA on the other hand is a bona fide long play imo, probably my highest conviction 'long play' purely for a modest return on the journey on the DRP - an opportunity to buy early in quantity $1.00 - $1.03 and a new pile recently $1.3 - but the potential for a 2, 3 - 5 bagger in capital gains over the next five-ten years or so, hopefully more for longer. I can't see any other multi-bagger than OCA in this sector, except possibly ARV, so I've got a few of them as well, albeit much less than OCA. The earnings are just a bonus and go straight into DRP anyway.

GLTAH.

[Beagle]

I don't forsee the earnings growth to get your multibagger for all the reasons stated above especially with current management, but good luck. I am not surprised Macquarie want out.

[Beagle]

That big tax credit gives a clue as to how much Oceania lose from non-property activities

I reckon those loses were at least $15m in H1 .....probably losses from looking after old people

In contrast it appears Arvida and Ryman make quite a lot from non-property activities while Summerset make a little.

Reading between the lines of Beagles posts losses from Oceania’s care activities might continue for some time.

I think their losses from care will go from bad to worse.

[Snow Leopard]

So nobody has bothered to get to grips with the accounts yet then!

OCA is what it is, now trades at what I consider fair value.


England is currently 'dank', weather wise, according to the weather forecaster on TV the other day.
Apparently that means 'unpleasantly dark and cold'. Seems accurate to me.

[couta1]

So nobody has bothered to get to grips with the accounts yet then!

OCA is what it is, now trades at what I consider fair value.


England is currently 'dank', weather wise, according to the weather forecaster on TV the other day.
Apparently that means 'unpleasantly dark and cold'. Seems accurate to me.

Going by the market reaction to the result it would seem about fair value. PS-I wonder if Macca ain't getting ready to spit out a few more truckloads of peanuts for the bargain price around $1.25 which will then be recycled until the cows come home.