OCA - Oceania Group - retirement villages

[Maverick]

I'm kind of glad the share price fell a bit before the weekend. There is something “grounding “ about it so rational thinking can resume for the 2 day holiday.


There is no doubt that the rapid SP rise was solely on the back of public recent reratings by 2 analysts (out of 3) . “4 traders” website has the 3 OCA analysts average target price now of $1.40. It seems highly likely that the 3rd analyst will upgrade too when he gets to it.


I have been lucky enough to have been sent both of those reports from a friend here. After spending a couple of days on the Credit Suisse report I see 2 clear mistakes (the rest of the report is excellent) they have made which produces a significant undershoot in their underlying expectations.
This gets technical but “a must” to understand for any serious OCA investor….


First, they have used an assumed ILU price of $720ish by averaging an apartment ($1100ish) and a villa ($480k ish). Problem with this is OCA’s pipeline is 90% apartments and only 10 % villas. See the issue? This makes a massive difference to the bottom line as income from new sales and future annuity like DMFs are seriously understated.


Second, is to do with the forward assumed resale price % increases. Here they have again averaged the historical resale returns of a care suit (10%) and a ILU(29%) to come up with 19%. What they have missed is the care suits churn every 2.5 years so , apples for apples , care suits actually should be adjusted to 30% resale margin to line up with a 7 year ILU churn. Or better still , actually treat care suits as a completely indepenadant bunch of numbers on their workings.

In a nut shell, thats 3 out of the 4 income streams where these incorrect assumptions are coming up short . The 4th income stream is DHB care fees, I don't think we should ever expect any income growth coming from there.

Respectfully, I suggest Credit Suisse have tried to condense the OCA numbers so they fit into an existing SUM or RYM template which doesn't account for OCA’s complex different weightings of high and low value offerings, all the while churning at different rates.


Forsyth have made almost exactly the same assumptions as CS and their net result is similar to Credit Suisse.


However what we all can agree on together, is that there is about 15% CAGR in profit in the next 3 years (neither 2 project further than this). It's just that I start from a much higher 2021 base and I am even more bullish with the CAGR. Id like to add Beagles latest earning numbers here are almost identical to mine and for the record we both work independently.


So I'm saying the latest analyst figures are quite wrong to the underside. These minor errors may seem small buried somewhere in a spreadsheet but produces a result significant under shooting on the bottom line.This tells me that the story is still not understood properly even by the larger broking houses.


I fully respect the analysts composing these reports . So for clarity , my comment about “ drunk monkeys“ the other day which has taken some traction here was never pointed at them for a moment. We all do agree on all the other well laid out stuff.
While they will be much smarter than myself, I can say am right on this and they are wrong only because personally I have all day to fully focus specifically on a just few companies I'm interested in. These poor fellas will have to spread themselves thin all over the place under a ton of pressure and deadlines. No swanning around the country doing site visits for them!

However ,the share price is moved by their words , not lil’ ol’ Mavericks or Beagles butfrankly, what difference does a short term shareprice fluctuation make to a non- trader anyway?


Late January is judgement day when I'm saying there will be a seriously major uplift in underlying profit well ahead of any expectations to date.
My conviction on these statements and stock (covid withstanding) is such that if I am proved to be wrong I should be expected to "turn in my wings."

[Waltzing]

This stock has never retraced 20 cents over a 4-6 month period on the open and close.

It would take a large event to move the price down from a high off 1.40.. Intra day 1.49 to 1.20.

Im afraid this stock has put in a pattern that reflects market sentiment on its EPS performance in relation to the other sector listed companies.

1.20 is highly unlikely from here but it possible if bad news events occur.

In relation to the post by the leading private investor analyst we are hopeful they continue to get the numbers wrong as we have gone from over weight in 2019 to very very under weight in 2020!

Thankfully we have got exposure through ARG, KPG, GMT (T) , Retail, KMD (T), HLG , and a few underwater stocks in cyclicals that wont pop back until vaccines are distributed in 2022.

Thats right people vaccines wont be here for the public in the world until 2022 for everyone who needs them, either jabs or nasal.

(T) stands for trading. Else it is marked as HOLD.

Some of these names for chart elements remind me of some sociology text i have in a large family book collection.

[couta1]

This stock has never retraced 20 cents over a 4-6 month period on the open and close.

It would take a large event to move the price down from a high off 1.40.. Intra day 1.49 to 1.20.

Im afraid this stock has put in a pattern that reflects market sentiment on its EPS performance in relation to the other sector listed companies.

1.20 is highly unlikely from here but it possible if bad news events occur.

We are talking about the sharemarket here, expect the unexpected at all times.

[Beagle]

When the analysts get back from their summer holiday's in late January they are going to be scrambling to seriously update their valuations, mark my words.

[couta1]

When the analysts get back from their summer holiday's in late January they are going to be scrambling to seriously update their valuations, mark my words.

Long term this is still the pick of the sector in my opinion, will be the first to double in value from here.

[Waltzing]

"expect the unexpected at all times."

well then we will be very lucky and we can move from under under weight to having a few more!!!

The numbers are the numbers and the chart is clear. except for one big variance. Chart people.. get with the chart. The chart is you and you are the chart.

A blow out in EURO and US virus waves may cause some flux.

[Beagle]

The future is uncertain but there is no fate when it comes to portfolio performance, but what we make for ourselves.

[Waltzing]

govt locks in funds at super low rates for decade. fund managers not expecting inflation for a decade. OCA may be able to bond issue again for low rates and increase conversions.

We are thinking in the next 5 years those you can move there free profits to stronger currency investments will possible prosper.

NZ just did not take the leap we hoped it would in the crisis that MR O offered the government.

List property stocks should probably all go bond issuance at super low rates.

I hate to say it but MR B called it. Low for a decade.

[macduffy]

Thanks Maverick. But what do you think about Credit Suisse's assumption of an average apartment price of $1.1m? Is this an assumption or an actual price? Seems a bit on the high side to me.

[Maverick]

Thanks Maverick. But what do you think about Credit Suisse's assumption of an average apartment price of $1.1m? Is this an assumption or an actual price? Seems a bit on the high side to me.

Hi MacDuffy.
last years actual OCA sales figures were apartments at $1131 per apartment and villas at $467. OCA present these figures individually and are consistent with 2 years gone by.
(Previously FY18 -$973 and FY 19-$998k)
However in their more general blurb they simply descibe these 2 offerings classed together as an ILU.
Credit Suisse have not assumed the $1131 wrong , it's just they have watered it down by averaging it with a villa ( of which OCA make bugger all). They have used the mid point for their workings to use as one ILU price fits all. In fact have a nice graph displaying their future assumptions of agregate ILUs figure sitting around the $700-$750.

I have considered and priced in that there will be an average drop in the apartment prices as the Nelson ones are only selling for $580-$825. But in reality Nelson is really about care suits and don't have many apartments. In the mean time OCA still have a load of Auckland meadow bank and a handful of Browns bay left to sell which will hold the apartment prices up for a while.
In which time OCA will have a truck load of Hamitlon, Auckland and Tauranga apartments coming on stream which will hold the average up. CERTAINLY not $720.
FWIW my own apartment assumptions; FY2021 is a drop down to FY21 $960 and FY22 $850 and then heading back up again. I now consider too low given the property market fizz.

Also of interest to me when talking with Nelson was some of the recently finished Nelson care suits are going for $400k which is an OCA record....and they are selling !

I kind of feel like apologising for these long and technical posts but I don't see how I can communicate this complicated story any easier...which I think is OCAs biggest problem too ...for now.