OCA - Oceania Group - retirement villages

[Baa_Baa]

I think what the market looks for is to not have to be a forensic accountant firstly, just a recurring growth in Underlying profits and a decent dividend will do just fine.

[Beagle]

I still maintain, (although you'll not see this in any accounting textbook) This years NAV or NTA less last year's NAV or NTA and add back dividends paid during the year is a great way to cut through masses of paperwork to work out how much the company really made during the year. Multiply that figure by 15 (for this ultra low interest rate environment) and that's not too bad of a valuation tool either NAV better go up otherwise I'll have to invent another new theory...might even have to resort to asking Couta1 for a relativity theory

[winner69]

I see nobody has responded to Snow Leopard - Should you think you have all that sorted before I get back from the wine cellar then you can ponder the industries insistence that the "underlying profit" thing is a better measure of performance than the old NPAT/Comprehensive Income.

[winner69]

I'm trying to do it the hard way and develop my skills in the valuation model based on residual income.

Good stuff ...how did day 2 go.

Is a good approach.

What will you do if the exercise shows negative residual income (depends on assumed cost of equity of course) .....valuation below book value eh.

Keep us up to date.

[Paradox]

if valuation is below book value, a simple view would be to put your $ elsewhere? you're right about cost of equity. and of course, we've to take a position on the required rate of return.

My day 1 was fine - Loaded 4-years of income and balance sheets, reformulated them to split operating revenue/expense from financial revenue/liability, added the dirty surplus (eg property revaluation);

Day 2: got the latest population forecasts for the next 30 years with breakdown of 65+ to 80+ age group so it'd help my sales projections.
I've also reconciled the number of care beds, suits, hybrids, and units OCA will have by FY2020.

Next step is to focus on the revenue each stream within the operating segment has returned. this is where I'll have difficulty as OCA has inter-segment pricing, their statements aren't flash (compared to RYM) - so I'll have to make some assumptions.

Next weekend: I'll reformulate the statements with 5-year projections and look at the graphs.

mid-July: I'll complete the valuation, just in time before the annual report (is it 20th that we expect to see it?)

[Paradox]

I still maintain, (although you'll not see this in any accounting textbook) This years NAV or NTA less last year's NAV or NTA and add back dividends paid during the year is a great way to cut through masses of paperwork to work out how much the company really made during the year. Multiply that figure by 15 (for this ultra low interest rate environment) and that's not too bad of a valuation tool either

would you include property revaluation gains in this consideration?

[bottomfeeder]

Ahh we shouldn't forget future potential of increased earnings, and future increases in NTA, NAV and ability to cope with inflation increases, ability to cope with recession, depression, movement in interest rates, etc, etc,etc. So not just quantitative measurements, but qualitative measurements as well. Just so much goes into the valuation of an investment.

[Paradox]

lot of those measures will be absorbed in the industry beta, required rate of return, likely interest rates etc. and support the valuation.

I agree any valuation model is just one lens into the company - in this case, it is viewing through operational/economic profitability rather than accounting profitability.

[winner69]

lot of those measures will be absorbed in the industry beta, required rate of return, likely interest rates etc. and support the valuation.

I agree any valuation model is just one lens into the company - in this case, it is viewing through operational/economic profitability rather than accounting profitability.

Good work here paradox ... I think it’s a very good approach

Mind you I’ve found that residual income / economic profit seem to be dirty words on this site. Don’t let that put you off as many real investment managers take this approach rather than the cheats way that broker analysts take.

[Beagle]

Beagle’s short cut methodology is essentially the same as using Comprehensive Income and applying a P/E of 15 to value. It includes property revaluation changes.

Cheats way to cut through all the paperwork and useful as a starting point for consideration. Of course what it doesn't encapsulate is the transformational journey the company is on of transforming old style rooms where OCA are getting a very poor return on investment through old style govt funded care into care suites which will generate a substantially better ROI going forward.

The age old problem with comprehensive income reporting that is required by international financial reporting standards (IFRS) for all property companies is you will get substantial swings in reported IFRS income depending upon the state of the property market.

I still think underlying profit is a better starting point as the focus shifts to what profit was actually realised from previous gains in the property cycle and encapsulates the age old accounting convention that a profit is not really a profit unless its realised. I think that's why the industry has always focused on underlying profit as this foundational GAAP (generally accepted accounting principle) has been around for hundreds of years and predates IFRS comprehensive income reporting by a similar very substantial timeframe.

Nevertheless IFRS reporting is worth considering in the mix as underlying realised profits come from historical IFRS valuation increases, (the difference is known in this industry as embedded value) Embedded value is the difference between the current valuation of all units and what the residents originally paid for their occupation right agreement licences.