RYM - Ryman Healthcare

[Beagle]

Crikey Sauce that'll take a while to digest, excuse the pun

I've been meaning to spend some time this week suring up my thesis that the EPS released by Ryman, i.e. just over 20 cents per share is the correct figure upon which to base one's assessment of earnings but havn't got the time at the minute so let me just put this out there and get some feedback.

My contention is that Ryman's underlying profit, i.e the $72M reported understates their real earnings. The correct figure is the $100m inclusive of unrealised valuation gains. Before you all jump on me and suggest this is ludicrous, let me explain.
We know under IFRS that all property companies are required to revalue their investments each year and include that valuation movement in the financial result and we know how bizarre that's been for some of the real estate investment trusts but my contention is Ryman is a special case in that's its business model involves the certain churn of properties approx every six to seven years so the gains, (which are shown as unrealised becuase they are re-selling a licence to occupy, not the units themselves) are an inextricable part of their business operation, therefore such gains are in fact normal income due to the highly predictable nature of the churn rate.

Now before you take sidesi know this, even the broker's analysts can't agree on this, I've seen one analysts report showing a forward PE of 12 and another over 16 depending on which side of the fence you sit.

My contention is that if the normal churn is factored into earnings (which it should be because its inextricably tied into their business model), i.e. the $100m figure approx 20 cents per share and assumming 15% growth this year = 23 CPS earnings the 12 month forward PE of Ryman is only 11.7 at the current share price of $2.70. Given growth of 15% this puts their price earnings to growth ratio (PEG) at 0.78 which makes Ryman a very cheap growth stock.

So if we assume inflation for the forseeable future is about 3%, which seems to be the general consensus, Ryman revaluing their entire portfolio by about that amount each year based on the units going up by that and churning every seven years for a realised gain of about 21% every seven years or so, all makes good common sense to me.

Is there something I'm missing, as always, I welcome a good debate.
Disclosure, recently bought a lot more Ryman.