OCA - Oceania Group - retirement villages

[BlackPeter]

First impressions. Solid result investing for the future. Developments on track and on budget, (no easy feat in today's market)
Underlying profit on track for 8.42 cps as per IPO forecast. Most future developments already consented removes risk compared to other sector participants.
Seems obvious to me 2H realized profit from new developments will be a lot higher than 1H.
Looking forward into 2019 and beyond they have a credible development pipeline and are slowly building a credible track record of completing developments on time and on budget. Care standards second to none. NTA is up to $1.01 per share. Good embedded value of $145k per unit. Development margin in 2H looking to be mid 30% mark which is impressive.

This looks to be a shaping up as a good core portfolio stock going forward. $1.01 / 0.842 = forward PE of just under 12. Very cheap for a sector with strong tailwinds and their stellar care reputation will hold them in good stead in terms of market demand. (Note I have used the theoretical ex divvy price in PE analysis as they're going ex very shortly)

Great summary. Yes, it looks like Mr Market expected extraordinary results. Personally I am quite content with them "just" delivering on their promises. The significant increase in units to sell for H2 is already a bonus .

I tend to feed my models with IFRS NPAT (vs underlying) and even if they deliver in H2 not more than in H1 (highly unlikely - they have many more units to sell), they would already deliver a 13% EPS increase. I can live with that ... but if people are unhappy - just push the price further down and I might be unable to resist buying some more ;

Discl: hold (L) and currently sort of overexposed to retirement stocks - otherwise I would have bought already some more at current discount rates;

[BobbyMorocco]

Hi mate,
I hold both with a bias in terms of capital allocation to the proven performer. The market is always a forward looking animal so tailing PE's are of little relevance.
I'm happy to take them at their word that OCA is on track to meet IPO forecasts and believe a forward PE of 12 is very sound value for a stock in this sector with their stellar reputation for care.
Look at it this way. If you're moving into a retirement village in the mid 80's you're going to probably pick one with the stellar care reputation, kind of like if you want really good inflight service you'll fly Singapore Airlines or Emirates business class. A PE of this level is possible still appropriate until they prove themselves further but there is definitely potential for a rerating over time.

SUM's strengths are their independent living units which are very spacious on average for the sector. Too early to make the call on their underlying profit for 31/12/18 but my best guess at this stage is $90-95m, about 40 cps. Dec 18 forward PE is about 13.8 times.

True, the market is a forward looking animal but when a company has been listed less than twelve months it's incredibly difficult to forecast what their forward earnings are going to be. Anyone can forecast earnings of X amount but with companies like Ryman who have grown at the rate they've said they're going to grow at year after year you can calculate with a certain degree of accuracy what their forward earnings are going to be. You can do this to a lesser degree of accuracy with SUM and I don't believe you can do this with much accuracy at all with OCA. This makes OCA a speculative play at this point. I don't mind the odd speculative play but in my opinion there's no reason to play that card in the retirement sector when there's some other incredibly good performers that offer good growth and good value as well.

That's why right now I hold SUM because it has proven itself as a solid performer and it also offers good value. Why it would be on a comparable PE to OCA is beyond me. I think both will grow at about the same rate but I can trust SUM to do it, OCA I can't. It's also why I'm going to back the truck up on RYM like there's no tomorrow at the end of the next bear market. I can trust that they're going to perform very well for a long long time. I'm still a bit sad that I haven't taken the opportunity to invest in RYM again after selling out in mid 2014 when I felt it didn't represent good value any more, but I'm hoping the funds that came from that sale will continue do well being invested in SUM and hope that at some point in the not too distant future I'll be able to pour funds into RYM again.

In saying all this I think OCA is good value if they can do what they say they're going to do but until they've proven to me that they can do that I'm happy to have my funds elsewhere

[Beagle]

Fair enough mate I hear what you're saying and don't disagree. Its a little like comparing an apple and an orange though because one has a predominant focus on care and the other a predominant focus on independent living which is potentially more vulnerable to swings in the property market.
Like you I have a bias towards proven performance but OCA reckon they're going to lift care earnings in FY19 https://www.nbr.co.nz/subscribe/211931I think they will both do well and RYM is still overpriced.

[percy]

I remain "well positioned" holding OCA,RYM and SUM.

[trader_jackson]

So maybe it was ‘buy the rumour sell the fact’ after all.

Where’s t_j — not as quick of the mark as usual. Only took him 10 minutes to comment on the last SUM announcement ha ha

I’ll forgive him for being quiet — probably still trying to make sense of the numbers but I look forward to see how he views this result.

My apologies for not being able to respond sooner.
Long story short, it was a solid result, although not a stunner with no explicit noticeable upgrade, just reaffirmation of the prospectus forecasts. When I was reading through the presentation and interim report, and although most of the graphs and development margins and resale numbers were very nice to look at, the 1st half just didn't quite have the 'wow' factor Mr Market must(?) have been expecting, such as an upgrade to Pro forma Underlying EBITDA what ever that is to the famed 60m. However, although only 23 net units were delivered in the whole of the first half (am I reading that right? - sounds a bit weak), and 69 resales looked a bit weak, it sounds like 102 were 'delivered' in Dec and Jan and that resales are taking off so it looks like we could be in for a big and exciting 2nd half. bit like arvida, in fact OCA's presentation made Arvida's recent ish results look even better

Ironically, if they do no better (ie the same) in the 2nd half vs the first half, on underlying profit basis, OCA is currently cheaper than sum if not most others in the sector, yet still has the same attractive fundamentals + many hundreds of units/beds under construction, without anywhere near the debt exposure and the risks this brings in this rising interest rate environment.

A good, but not a great result... OCA is certainly well positioned with a long term solid development pipeline, good continuum of care, and great fundamentals.
Just not sure why the share price is treating it like a bad result.

[winner69]

Wonder if all the bigger trades was one seller (probably was)

Whoever they were pretty keen sellers, generally taking the market down a cent at a time

Must have pretty disappointed with how things are going and the guidance.....wonder if they or more instos going to sell heaps more.

Must admit a pretty major reaction today

[huxley]

Wonder if all the bigger trades was one seller (probably was)

Whoever they were pretty keen sellers, generally taking the market down a cent at a time

Must have pretty disappointed with how things are going and the guidance.....wonder if they or more instos going to sell heaps more.

Must admit a pretty major reaction today

The sun will soon be setting over the hills of Wellington.. “between the idea and the reality falls the shadow..”

[Beagle]

Closed below NTA. $1.01 NTA already has the divvy accrued into it as a liability as at 30/11/17. Theoretical ex divvy price currently $1. Sound long term value and hold for anyone than can see past the end of their snout, in my opinion. Those that can't sniff value here in an otherwise stretched market...I feel sorry for them...
Ready to pounce if this goes under $1.

[macduffy]

[QUOTEJust not sure why the share price is treating it like a bad result. ][/QUOTE]

Don't confuse sharetraders with investors, t j. I'm in the latter camp on this one.

[value_investor]

I've been watching from a distance at this one, while the result is less than glittering, the company isn't poorly run and management know what they are doing.

A lot of people were probably expecting this one to go to the moon today but there is enough here to like what I see. A lot of development in the pipeline, and looks like they are savvy enough to keep it on time. Be patient, this is not a flier but a potentially profitable long term hold.

Disc: Keen observer, potential holder.