Good news - the adjusted underlying OCA share price just hit $1.52
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Good news - the adjusted underlying OCA share price just hit $1.52
Never? :t_up:
well coincidence it never drop to 1.25 chart support an earning report saved it..Dropped below 1.20 and it was a sell.
A post (above) from July 2020
I appreciate that people (or dogs even) are allowed to revise their opinion as market conditions evolve. And I don't disagree with Beagle's latest assessment (above). But one thing that is puzzling me is the joining of the dots between the July 2020 position and today. The elderly homeowner, on the cusp of moving into care, is on paper up to 40% better off today if they convert their house to cash. So, on paper, there should have been plenty of money to move from their house to a 'premium' care unit which OCA are specialising in. And IIRC I was told that though there are rich all over the country, there are so many multi-millionaire home owners in Auckland, that the construction of entire 'premium' villages is viable, and OCA are the ones best positioned to benefit.
So what happened?
SNOOPY
Hi Snoopy,
I think much has already been explained but obviously the pandemic has dragged on and on and the cost of providing care services has far outstripped Earl's representations made as recently as Feb 2021 wherein during the call when he responded to a question from one analyst regarding how they should think about the cost of care going forward and he said that he believed it would move up in line with MOH funding, or words very close to that effect. I don't think some of the analysts on the call on Monday are very impressed to now see care costs rising at 9% per annum ! Its rather convenient for Earl he's not here to face the music.
Therefore I am not surprised to see analysts pulling back their forecasts...first indications are starting to come through some are not impressed. Average target price before the result was $1.71 and is now $1.64 and may reduce a little more once all the revised forecasts are in
https://www.marketscreener.com/quote...268/consensus/
Obviously being in dispute with MOH for 4.8% of extra costs they're not funding is a real headwind to the business, until its resolved.
To me from comments across the sector by OCA and other operators, MOH are simply not funding the extra costs imposed on care business's by Covid and that seems egregiously unreasonable considering quality health care providers are doing an awesome job of protecting the elderly and vulnerable.
In a quieter moment I sometimes ponder if we're headed towards a situation where the MOH underfunding will become so chronic that if you want quality care you'll be forced to buy a care suite ? I wonder in due course once OCA have achieved their targeted 70:30 premium / basic care transformation whether they'll keep going and ultimately almost completely transform to only a premium care suite and independent living unit business model and get out of basic care altogether ?
There is clearly more money to be made with independent living units. I am not sure if my recollection is that good but I think originally when they acquired the new full feature village at Waterford in Hobsonville they were going to add a whole bunch of care suites but I noted in the presentation the other day they are planning for 50 more independent living apartments. I might be over or misinterpreting this but I am encouraged by what I see as perhaps a subtle shift in focus towards more independent living units.
Finally, June 2020 is a long time ago my friend. Everyone needs to be agile and on their toes to navigate this difficult market.
Disc: Holding a modest sized stake.
Another little climb today.....
If there was not a cure to aging on the horizon then I wouldn't want to check in to places such as this.
Keep the inheritance intact, spend my final year in a motorhome going up and down NZ for a couple of years, eating what I want etc. Would be a better situation.
Yes, but when you are not very mobile, perhaps incontinent, or losing your mind a little, aches and pains, problems with balance, you have no other alternative. You are not like wine, humans always get worse with age. Some worse than others. Perhaps you will be one of the extremely lucky ones. But after your couple of years on the road, then what.
There is no dignity in spending your last years in a motorhome you can’t drive, a home you cannot clean and a body you can’t keep hygienic.
People are living longer and longer and becoming more and more frail in the last years, your thoughts are nice but unrealistic unless you plan to end your life before you get to a state described above. The reality is the human will to live is stronger than most realise, it pays to plan ahead, for your sake and your families.
My grandfather lost his wife last year and staunchly wanted to live in his own home, he was reluctant to move into a care solution but what he didn’t realise was the strain it put on his family having to drive to him over an hour way multiple times a week to look after-him, he become very depressed and dropped all of his hobbies.
He finally moved into an aged care provider and the difference is night and day, he is in significantly less strife as he is getting nutritious food all the time, his meds aren’t missed and has people around him who he can socialise with. He looks years younger and has even started playing his musical instruments again. He is enjoying his life and it’s such a relief.
The services companies like OCA provide really are needs based, people cannot live without them unless they have families who can stay with them during the days and work less and less hours, even then they are not professionals. This is increasingly difficult in the modern world with people working more and more and living longer and longer.
The nice thing is you can record things for your grandkids today and it will last forever . So I'd want to do that and then take up a dignified exit through euthanisa.
................
Sorry to get back on topic but the stock watchers might have noticed a breakout (up) from the down trend channel the past couple of months. RSI (sentiment) is bullish up to 50's already. A run up is possible, stall at $1.40, break that and $1.50 or so is in play. Today was on volume which has been lacking for November.
Care and rising wage cost ….immigration policy?
My mate Michael
@MHReddell
Interesting result - in NZ we sometimes think of immigration keeping down the cost of rest-home care - but of course if true, this result presumably comes about mostly by pushing down the relative price of these types of labour.
In response. To this study:
Immigrants keep us out of nursing homes
by Tyler Cowen November 30, 2021 at 2:31 pm in Economics Law
We examine whether immigration causally affects the likelihood that the U.S.-born elderly live in institutional settings. Using a shift-share instrument to identify exogenous variation in immigration, we find that a 10 percentage point increase in the less-educated foreign-born labor force share in a local area reduces institutionalization among the elderly by 1.5 and 3.8 percentage points for those aged 65+ and 80+, a 26-29 percent effect relative to the mean. The estimates imply that a typical U.S-born individual over age 65 in the year 2000 was 0.5 percentage points (10 percent) less likely to be living in an institution than would have been the case if immigration had remained at 1980 levels. We show that immigration affects the availability and cost of home services, including those provided by home health aides, gardeners and housekeepers, and other less-educated workers, reducing the cost of aging in the community.
https://marginalrevolution.com/margi...ing-homes.html
Interesting response to Michaels post
An unpalatable job on low pay. Schools don’t foster the kind of graft needed in rest home work. By encouraging tertiary education we’re reducing workers we need. Suppressing wages & ignoring these immigrants will eventually require rest home care that will compound our aging popn
Well that has to be one of the most complicated reports I think I've ever seen. Where do we even start?
To pick just one (of dozens) as not to send everyone to sleep, Beagles post about rampant care costs constantly stripping away any of the ultra slow gains of DMFs etc. You raise very valid concerns, and always have, about this ever growing disappointment.
To be fair, , the analyst pointing out that operation costs have gone up 9% , although true , needs a bit of unpacking . In those costs they had an extra one off cost of $1m for covid cost and they also repaid $1.8m of wage subsidy also they took over the staff cost at Frankton- a big paddock with a single level 44 bed rest home on it.
If We set aside these extra cost out and consider the extra new staff additions then the staff cost have actually risen this HY at the usual OCA annual pace of about 6.25% p/a over the last 5 years ( the govt DHB fees have gone up about 5.5% p/a in comparison over the same time) .
The ratio of operations expense /care fees tells a grim picture as you, again, rightly point out Beagle
These are annual ratio results;
2017-83%...2018-87%..2019-.90%...2020-97%...2021-97%...2022-(inc estimated 2hy) 97%.
So this year and the last 2 years operations expense /care fees have leapt up a lot and then flatlined at 97% which is pretty well only break even. This is either DHB underfunding as you suggest or extra covid costs (or some combo most likely). Given the time period and flatness of the 2 prior years (plus this year) I'm tilting towards covid being the biggest reason. I pity the poor mum and dad owned rest homes who will be really struggling without fandangled ORAs and PAC fees to help. One thing in the incumbent "big care" providers favour is that no smaller players in their right mind will be building new rest homes. While a future moat for OCA, it's seriously real problem for future oldies who get sick without a lot of money.
Looking ahead some years to 2026 in my spreadsheets when the care stuff should be humming, I've got bad news. The 97% operations expense /care fees ratio hasn't budged. But I am basing my forward assumptions based on only 5 years of history with bulk decommissions and covid disruptions within it so things are likely to actually be better than calculated but who knows for sure.
I don't believe OCAs care suits (including the PAC and DMF) will ever really make any decent money … EVER.
I've always said they were a red herring as the source of where the OCA profit growth will come from and now I think it's actually worse than I was anticipating. Yes, they will make a little more profit in the future but it's more to do with their footprint growing rather than improved operations.
On a far lesser concern but more immediate effect for their “care” part of their profit is why the heck did they repay the subsidy ( I'm pretty sure ARV haven't...T-J?) . It has helped wipe out the growth this HY (the other reason being the 12.5% new share issued but that's for another day).
Financially I'm personally against the repayment as this is what the subsidy was for but a part of me is also proud that the directors choose to do an honorable thing. I did not know they did this until Monday so has caused me to downgrade my earlier stated share price expectations because of the reduced EPS effect. Although it will have no effect in a year or so.
While they have tried to show us 2 sets of books with stripped out repayment figures ( yet more adjustment on adjustments) it just has helped create a report that is extremely difficult to untease.
A year from now things will be simpler and clearer with all of these multi layers of adjustments having washed through.
I see it as the directors trying to be as informative as possible but for the folk with a day job, I doubt anyone ( apart from a few here on ST) can actually DYOR …..it's just too much.
If you are willing Just a Kiwi, I'd love to hear your opinion on what you think covid costs might be as we live with the virus. OCA spent $1m on it for 1 month of lockdown !!!...extra staff wages and PPE. Knowing the workings of care as you do, is this an expense that will be somewhat cemented in going forward or do you think covid costs will relegate away into the infectious stuff you always dealt with anyway and therefore at those older historic costs?
Thank you for those insights and explanations Maverick, always appreciate your insights.
Hi Mav,
Great analysis, as always, thanks for sharing.
Given your outstanding analysis of this company, just a couple of questions which corossed my mind (you may or may not want to answer :)::
(1)
OCA's books always have been difficult to read and convoluted ... and with this report it just got one step worse.
This is something which can create cynical thoughts ... why would anybody want to present their figures in this form, unless they have something to hide.
Can you think about another reason?
Or is there a school for concealed book keeping which their CFO mastered - and if yes, would this be good for share holders like us?
(2)
I agree with your sentiments on repayment of the Covid wage subsidy. I guess given that this is funded by taxpayers and given to companies to (partially) cover some of the additional Covid expenses, I don't see how it is in the best interest of share holders if they repay this subsidy.
Do you?
You can say that again. I am not even going to try whilst working full time and raising a young family.
This is why ST is so great. We are very lucky for you, Beagles, Winners etc contributions.
I base my investment in OCA based on macro trends and pricing to NTA. Then read everything that is posted here to help fill the gaps.
Thanks for your thoughts Maverick. I know you have a lot of time to spend on OCA accounts. With no formal accounting or investment analysis training I think you do a splendid job in very difficult circumstances. As a professional I can report that OCA's accounts are by far the hardest to understand of any I have tried to comprehend.
Without restating anything I've previously said I agree with your perspective that care suites are by and large not going to be a material contributor to profitability going forward unless they are materially re-priced and I wouldn't rule that possibility out. By re-pricing I mean not just the capital value but also the DMF ratio's. Maybe we could see them repriced to a 15% per annum DMF fee non declining going forward ? I think OCA need to get super realistic and a lot more commercial here.
Its abundantly clear it costs an absolute fortune to provide high quality care and the cost is increasing at significantly more than the inflation rate. Not to put too fine a point on it but if "Johnny" has sold his $2m house to move into a $400K care suite and needs high quality care, he's still got $1.6m left over and does it really matter if he loses 15% per annum of the value of the care suite for every year he's there ?.... or is getting the very best care more important to him ?
I was also very disappointed to see them repaying the wage subsidy especially at a time when the Govt are outright refusing to fund the extra costs of care in relation to Covid. This makes no sense to me and looks like they have bowed to perceived socialist pressure.
I am hopeful that FY23 will see a good uplift in profitability with a more fulsome development book.
My expectations are that OCA management will take a more commercial approach towards unit and especially care suite pricing.
and the Beagle has Barked ...
its neck and neck between KPG and OCA...
BlackPeter says hope is not a good investing strategy but I'm hoping like hell that one day OCA will not be at the bottom of pile when it comes to how market rates it (Price / Book Value)
Here's the latest position. OMG the market views RAD more favourably.
I have also included how each Book Value has grown over the last four and half years --- maybe the market is rationale after all?
Hoping, hoping .... one day maybe the tabel will look different
I don't think it is realistic to compare the situation in the US (minimum wage $US10.30 per hour) and NZ as regards care home wages. In NZ those with L4 carer qualifications (a nurse in all but name) or for those with 12+ years service can earn $NZ27 per hour now (entry level wage is $NZ21.50 per hour). I think these are legislated minimums. So importing carer staff from overseas into NZ isn't going to get the job done 'super cheaply'. I imagine care homes in the USA are free to pay as little as they can get away with. So importing workers would push wages down 'over there'.
SNOOPY
Residential housing is NZ's best performing asset class.
If OCA cannot capitalise on this then what good are they.
Great post as usual Mav. Really appreciate the time you put into this for our benefit.
Unfortunately, I really can't answer your question. Things are significantly different for small (often not for profit) rest homes like mine. Our organisation operates three facilities, with ours being the smallest - a standalone 32 bed rest home level home. Vastly different from the likes of OCA and others.
I don't have any inside knowledge of COVID related costs. From my perspective however, I don't believe there would have been many for the home I work in. I have yet to see any full PPE gear - we have been doing nothing different through-out COVID, other than wearing masks full-time, for a period of time. As all staff and the majority of residents are now double (or fully) vaccinated, we are no longer using masks for every day tasks. I do know we are soon to be fitted with the N95 masks, something that has not been done to date. To be honest I don't understand that. There will be stores onsite somewhere, of needed full PPE gear, should we get COVID in the home, but the overall cost of that wouldn't be huge.
No extra staffing costs either, except on a few occasions where a staff member has had a cold, and been required to get tested - and stay home until the test results are returned. They get paid for that time off, and someone else has to cover their shift, but I believe there is a government subsidy to help with that cost.
To be brutally honest, life with COVID has not been hugely different for us. Restricted access has pretty much been the only real disruption so far. Having said that, if a resident or residents gets COVID, our staffing costs will definitely increase. The plan (if you can even call it that) is to isolate infected residents in one section of the building, and have dedicated staff caring for them only. That means 3 staff to cover 3 round the clock shifts (or 2 staff working longer hours). If we have more than (say) 4-5 unwell residents, we would need two teams of 3. Given that we are already short staffed, I literally have no idea how we would make that work. Not forgetting that these COVID teams will need a break/day off at some point.
I guess what I'm saying is, increased staffing costs will be the biggest cost if we get COVID in the home. If by some miracle we don't, COVID related costs will remain minimal.
The situation in larger facilities will be very different. They will be taking things much more seriously than we are. They will already have detailed plans in place for how to manage an outbreak. Personally, I think they are already doing, and will continue to do, a vastly better job than we are. I believe they have also paid their staff "extra" as a show of goodwill and appreciation, which is not the case for us. I know where I'd rather be working if COVID gets in.
At the risk of further antagonising those here who resent the fact - aged care is a labour intensive sector. Even if you took away the care branch of OCA altogether, everything else still requires staff. Cleaners and housekeepers, cooks and kitchen hands, laundry staff, gardeners and grounds people, cafe and bar staff, admin and management .... there is more to "staffing costs" than just RNs and caregivers.
[/QUOTE]They haven't been at all deceitful in their numbers that I can see ( and I can assure you I refuse to ever have the wool pulled over me ever again since Pike River…thanks again NZ oil and gas you bastards), I think they are just trying to tell too many stories of the many things they are transforming simultaneously which is causing the problem but what choice do they have? All but one* of the OCA numbers and their words stack up for me . This includes the "point of inflection" statement which for the record only ever applied to care profit about a year ago, not other aspects of the business
* (There has been one very disappointing exception - Earl saying a 1 1/2 yrs ago cooperate costs -"other expenses" -would flatline - they are rising at around 15% still!).
You have a frustrated and grumpy Beagle eager to have a good chew and of course Winner who has a fantastic memory for the what players said and did.
I think there is a pretty good team that OCA hasn't got a snowball's chance of hiding something if that was their intention.
My opinion on paying the subsidy back , and that's all it is -opinion ,is that it was unnecessary and has temporarily hurt the share price. But also a very good display of good will to the government. I suspect it has something to do with the advocacy going on between OCA with their role at the table of current industry reform. I also think it speaks of the company's integrity and also trying to be seen to be good guys. Certainly not a move by directors harbouring dodgy intentions referring back to your first question.
Really appreciate your extensive and honest summary of your experience. Just a Kiwi. I suspected what you have outlined was going to be the case with the smaller operators, how could they afford otherwise?. Was talking to a friend today who part owned a medical center about this and he thought that when you give staff a bonus , temporary pay , or whatever, that it is very hard to cancel it. I also like your point to JAK that so much staffing costs are far more than registered nurses.
My thinking for now is that the continuing and ongoing costs will be with us for some time and most likely to just inflate away in future wage rounds.
I'm not hoping for many gains at all for the foreseeable future in the care business.
Beagles comments about basically charging clients more for care suites is the most likely future outcome of the years ahead. OCA and its big friends by default will end up the only option to oldies falling apart (probably us). Eventually if OCA doesn't turn up the charging then the international pension fund who takes over OCA will.
Thanks for your responses , it's great to be sharing ideas together on this aspect.
Yes.....EQT certainly took a "dogged" approach (sorry couldn't resist, not a Beagle but pretty cute nonetheless) https://eqtgroup.com/news/2021/accep...ares-commences with the MET takeover so the mind boggles as to what synergies and value add they could extract from a merged MET + OCA.
This hound reckons they would take no prisoners when it comes to doggedly extracting a top commercial return from all parts of the business especially care when people make needs based (as opposed to lifestyle), decisions.
Trading at slightly under fair adjusted NAV at present, as much as this pains me to say, is probably where they belong until they can prove their ability to counter steep care cost increases with commercially appropriate strategies that provide an appropriate return to shareholders.
If we look at how OCA have performed as we head towards their 5th anniversary of listing and compare that to how RYM and SUM performed in their first five years we see that something needs to change at a foundational level with OCA's approach.
RYM listed mid 1999 and almost exactly doubled five years later. SUM listed Nov 2011 at $1.35 and 5 years later were $4.86
OCA 79 cents to $1.35 in 4.5 years of an absolutely rampant property market is not exactly earth shattering stuff is it ! Blame Covid or is there more to this ?
SUM has the most care lite model and did the best by miles in its first 5 years. Hmmm... Time for a change of focus by OCA towards less care ?
Even with the recent pullback RYM is 44 times your money in 22 years and SUM is 10 times your money in 10 years. No wonder we're addicted to punting, opps, sorry, investing in this sector. Trouble is in this horse race one animal is carrying more baggage than the others and that's why its at longer odds.
Next year will be interesting with a whopping 113 care suites, (I'm so "happy"), being completed at Lady Allum in Milford Auckland. Its one thing to build them and quite another to fill them and then another thing altogether to find the staff to service the residents needs.
Fortunately we might have the wonderful Waimarie development completed or very close to being completed in FY23 (strongly focused on independent living units) to come along and save the day and we might see record prices for top sea view apartments there.
On balance I think FY23 could finally see a decent uplift in earnings per share. I going to try my best to be optimistic and call for $1.70 by March 2023.
Disc: Punting a moderate bet and expecting modest returns from this heavily handicapped nag. Maybe I'll get the quinella with ARV ?
They're on record as having started construction in October...I would hope they have it completed by March 2023. On the call they mentioned that the five hundred and something units they have in progress across various sites should all be completed within 18 months. I expect pricing will be VERY high. I hope you have deep pockets ! I'll take a guess and say the best apartments with the best sea views will be ~ $3m.
I can say that are still their building the Waimarie development, seem to be working most Saturdays (as well as Mon to fri that is), well the crane is!
Seems to be plenty of worker vehicles there most days
And down we go. That was a short lived run post results. Mav makes a couple a comments and it's all over:t_up:
Oh yes it is. Thank you.
I'm a bit of a freshie at this, does chasing divies really work out? Seems like price drops instantly as soon as share goes exdiv. Are you trying to sell before price drops if you missed it gains would be small if any? Am I missing something
Won when lightly weighted in 1930 and my grandad told me he was a ‘heavily weighted nag’ like OCA is when he ran down the track in 1931
But luckily history not always a good indicator of future fortunes.
Percy just ran a great race for third in the 7th at Wingatui ,,,3 bucks a place OK but would’ve preferred the 10 bucks a win but like Oceania it’ll keep …there’s always a next time.
I don't know who the Phar Lap of the NZX is, but I wouldn't think it would be OCA.OCA have been travelling more like an average maiden who needs to find some fitness
Hope Brent gets the whip out on it next year and it finds some form or as far as I am concerned its off to the glue factory.
Suppose we better leave the horse analogies there otherwise some animal lover will get upset.
Moving on... Harbour are just out with their roundup of the earrings season and OCA gets a mention
https://www.harbourasset.co.nz/resea...d-by-covid-19/ concludes with "But for those companies with pricing power and structural growth drivers, there is potential to keep beating conservative earnings forecasts, supporting equity returns".
Brent, please show me that OCA does have pricing power because if you can't I'm off SUM where else.
Sum other horse has bolted long ago ? so far ahead its lapped this old nag 2.5 times already...it's really starting to look long odds...
For anyone who is interested and missed the live NZX Investor Relations webinar today, you can watch it here...
https://www.youtube.com/watch?v=KdNE3kEb6UY
I found it very interesting. Brent made it very clear that Oceania is primarily a care business and that is where their focus will always be. This is what sets them apart from the rest. Some of what he mentioned was in the results presentation, but there is some good stuff here that clarified a few things for me.
Worth a look.
Thanks for the link. A very good and interesting summary of the business direction. He did also stress their emphasis on their Care Suite development (sold under an ORA) including the conversion of some standard beds to care suites. This is a way for Oceania to continue to earn profits as government funding for care has fallen behind cost increases.
If this is reflected throughout the sector, as mentioned by other posters previously, this could make it more difficult for older folk without many assets to find a rest home bed (and there will be increasingly greater percentages of older people who have become priced out of home ownership.)
Brent's presentation also demonstrated Oceania's political lobbying. Hopefully he can impress upon politicians that concerns over government Covid policies and realistic funding for care costs are genuine. Otherwise companies, whose investors naturally expect them to have maximisation of profit as an important aim, will increasingly withdraw from the provision of standard rest home beds.
Thanks for the link JAK.
Finally something to be positive about. First of all some guidance on the future build rate that to the best of my knowledge hasn't been shared before...keep in mind their previous build rate has been a lot lower than this.
"We have 545 units under construction...we are going to continue to build sort of 300-350 units every year"
If I remember correctly the target was previously 200-250 units per annum under Earl's leadership and if I recall correctly they never got close to 250 ? (I may be mistaken here and am simply going off memory).
The second thing that gives me some much needed reason to be more positive is "we've started to increasingly move into Greenfield development" Over the next 5 years they have 821 care suites and 1140 independent living units planned for development and this will somewhat shift the unit mix. This isn't new info but is certainly worth taking note of.
I think with the rapid growth in development over the years ahead the opportunity is there to bring some economies of scale with head office costs and high level management salaries in particular being amortized over a much bigger business. This might being some relief to the rate at which human resource costs are increasing. They run their own training school for Nurses so they get first dibs on the best graduates.
I think when you compare the current development workload (545 units) and the future plan to build about 300-350 units per annum which is well up on previous build rates, the increasing focus on independent living units and greenfield development there are some grounds for optimism so with them closing on Friday at about 12 cents below the fair value adjusted NAV they are "Probably a pretty good Hold", (I am not upgrading to accumulate yet until they get more momentum in the business).
Lots and lots and lots of patience will be required here. Beagle is not very good at waiting a long, long time for a feed so I hope I can keep hanging in there.
There is plenty of land around.. Getting consent from Council is by far the biggest issue but I see about 75% of OCA's future pipeline is already consented. Perhaps that little fact that's easy to forget and/or gloss over adds a bit more to the fair value adjusted NAV of $1.42 ?
Back to OCA. I'll give Maverick a chance to chime in here with some number crunching, as i don't like using my steam powered abacus on the weekends.
Hey Mav, if they're developing about 180 units this year (going from memory) and the average run rate about doubles from that going forward and at prices that are heading higher, if we assume that development margin stay's around the mid 20% mark what does that do to their development profits in the years ahead ?
Feeling a bit better about OCA after considering that ? I know we're not heading off into orbit on a rocket with this anytime soon but you can't go too far wrong at $1.30 when fair NAV is $1.42 and 75% of their future development book is already consented, surely !
I guess one other little thing, (or maybe not so little), is at least there's some sort of not too shabby yield prospects with this one and I note the average analyst is predicting 4.2% gross yield next year rising to 5.3% the following year. Those are good yields for this sector.
https://www.marketscreener.com/quote...68/financials/
Brent mentioned that they currently have around 4000 total "beds" (care plus village) - and they are aiming for 6000 - I think he said within the next 4-5 years, but don't quote me on that. He talked about a 26% development margin. He also mentioned that the village side of the business pays for staffing and investor dividends.
Have to go to work but need to watch the video again as there is more information in that video than first meets the eye.
Beagle, your onto it mate with your questions. I'm away from my stuff for a few days so cant get back to you in any detail. Gotta make the most of the country before AKL get unleashed.
It's been great to watch your thinking over the week exploring firstly the disappointment of the cares costs onto the ever important apartments. This company is almost your nemesis that you love and hate at the same time.
The build rate increase and capex increase ( from 50 to 70m) is one of the huge highlights most would not know how important that is to the next few years profit.
But you've sniffed it out.
I'll get back in a few days to you
The care suites are just the opening band, it's the apartments that are the main event.
And BTW JAK thanks for that link. Its fabulous how everyone here adds to the value.
Thanks mate. Me and OCA...a clear case of give a dog a bone lol https://www.bing.com/videos/search?q...B2&FORM=WRVORC
.................
hope people traded the bounce into non imputed div , as expected short lived bounce. in theory the down trend is intact
How low below NTA does this go? Essentially liquidate and still get some..
http://nzx-prod-s7fsd7f98s.s3-websit...198/361089.pdf
Liz Coutts buys 50,000 more @ $1.31
Half year result part 2 - apartments
Ok Beagle, you've dug up the one nugget that matters most to OCAs short term profitability . So let's put care suites aside for now and move on to the main event - apartments. As I've always said , this is where the gold is. All RV companies get a major short term sugar boost from new build margins. The more they build the bigger the rush. SUM has been the master of exploiting this but have painted themselves into a corner as they can`t just keep building in ever increasing volumes to maintain their impressive growth,( IMO they have also previously cut corners too by not keeping up the care building rates which will ultimately bite them when the market is eventually satiated with RVs and it all gets more competitive). Hence RYM and SUM have shifted abroad to keep driving the growth. I suspect OCA remains listed on the ASX for this future reason as well, but I'm just guessing on that. While DMFs will ultimately be the measure of the business in the years ahead, for now it's all about new build margins boosting the bottom line while care and village DMFs will naturally follow.
You ask about quantifying the new build profit effect of the higher build rates ahead
A bit of background first will be helpful...
Every year is different depending on the mix of offerings and location .OCA are very good at telling us what's coming up in the next 2 years but nothing beyond that. I do note that Brent, who repeats twice in his video Q&A, of a future build rate of 300-350, would have a significantly positive effect on the bottom line as they normally build about 210 per year and the known rollout for the next 2 years is still at this older/slower pace. So there's a big question mark there from me that these 2 future build rate expectations do not line up. Brent's projection doesn't even come close to current activities. ( PM me Brent to tell me I'm wrong ,I want to be)
Here are the approximate average profit margins OCA make on their new stuff:
Villa$75k
Caresuite $80k
Apartment in Nelson/ Christchurch $120k
Apartment in Auckland $360k.
You will all see there is bugger all profit on villas unless you are bulk building them and IMO the days of mass building evermore than the previous years are over in NZ. OCA can sell 1 apartment for the same profit as 5 villas. ( while we are at it , just have a think about the overall DMF 30% return when the average tenure of an apartment is only 5 years as opposed to a cheaper villa which is 8 years- but that's for another day). OCA is hardly bothering to build any villas in its pipeline.
Currently OCA is in a flat spot of having a large amount of its empty apartments outside of Auckland so that's not great for record profits for now as they are a lower sell price and margin in comparison. On the flip side they do have a lot of them ( due to inability to sell during lockdowns so no worries) so they should be able pull a rabbit out of the hat this FY. That's as long as more covid lockdowns don't keep f**king sales up like it has for the last 2 years now.
You can see they have really upped their capex lately. That surge is the same amount as when they built the Sands and Meadow bank combined. BTW OCA achieved its record new build margin profit , 2 years after that capex surge ( see highlighted text below as to why the 2 years is noteworthy) but the excellent result never made it to the bottom line as it was unfortunately nullified by the falling care profits at the time because so many old rest home buildings were being decommissioned.
No doubt at all, a big chunk of today's capex will be for Waimarie`s construction. From my graphs and workings the profit reward for this capex spend always shows up on the books 1.5-2 years down the track…no surprise that's also about when Waimarie will be selling down.
So after saying all that, my best guess summary to your question Beagle…
today's increase in capex spend from $50m to $70M , particularly in AKL where they have always gotten a 35% build margin, will produce handsome rewards 2 years from now of about $20m profit for new build margins for the HY - easily setting a new record. (And this time care profits are also increasing rather than falling as in the past, so finally a double positive whammy for shareholders, in fact a triple whammy as DMFs are steadily growing too.)
We can also work your question out a different way …..by using historical average mix of deliveries and historic average margins blah blah blah . So if they are delivering Brent's verbal guidance of , say, 325 a year that's a new building total margin profit of $46m per year. To save folks doing the math's , that's $18m extra on the underlying profit each year. (36% more profit than now)
If they achieved this then that's not a sugar rush , that's cocaine!
Frankly, Despite the recent factual uptick in capex, I'll only believe the higher deliveries Brent speaks of when I actually see it. For now I will stick with the documented build rates....Brent you still havnt PM`d me yet???;)
You are absolutely correct Beagle when you say dogged patience is required with OCA. This company will deliver growing and stable profits with a high degree of investor safety, no doubt at all, and is enhanced nicely with higher capex like this, or even turbo charged if Brent's stated new build rates come true , but it won't be any time soon. It will still continue to be an incredibly unexciting share most of the time.
Superb work Maverick.
As usual, you have put an extraordinary amount of time and effort into this Mav, and I for one am truly grateful. I don't have the skills (or patience) needed, to effectively analyse reports, so the fact that you are always willing to do so and share with us, does not go unnoticed.
A high degree of investor safety is important to me personally, so I am happy to sit back and be patient. There will eventually be "life after the pandemic" and our elderly folk will continue to need aged care of one kind or another. The need for quality aged care will be greater in the future, than ever before. Lots and lots of opportunity for OCA to take advantage of that.
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This company will deliver growing and stable profits with a high degree of investor safety, no doubt at all, and is enhanced nicely with higher capex like this, or even turbo charged if Brent's stated new build rates come true , but it won't be any time soon. It will still continue to be an incredibly unexciting share most of the time.
Thank you to all key poster on OCA - and most recently the very generous Maverick.
I simply don't have the nouse or the background smarts to do or even understand some of the mechanics of what you guys share with us. I am very very grateful that you care to share.
I simply like this company and the sector and have a reasonable understanding of it all - enough that over these past 4 or so years I have gone very heavy into OCA for a long term hold.
I see there has been some real argy bargy lately and apologies offered and accepted - I do love reading the jousting of the smart people here - but not so much when it gets heated. Glad that cool heads always prevail.
I love that people have opinions and I don't hold anyone to what positions they have previously held as thoughts change and no ones feet should be held to the fire due to their changing outlooks- robust discussion is so valuable to help us all maintain some sense of objectivity.
Thank you once again to all posters and of course to those who really really dig deep to the benefit of all followers and investors of OCA.
Thanks Maverick for sharing, that's some analysis
Thanks for sharing all your hard work Maverick. Very much appreciated. I haven't a ****e show of understanding the workings of OCA by myself. Probably speaks volumes as to why the SP doesn't take off. As you have said in the past, OCA is just too hard for an 'average' investor to get a handle on. I'm just thinking about the positives, Greg bought a huge amount of shares @ 1.40 not long ago. Liz just bought a sneaky 50k worth. From memory, F&Barr stated they believe OCA to be one of the safest shares on the NZX. Brent's Q&A video, IMO, showed a competent leader who knows what he is doing. And, your in-depth analysis working the facts and figures helps clarify things enormously. Therefore, I'm comfortable OCA's future looks bright indeed. I'm a happy holder. Obviously, I'll be even more happier to see the market respond in a more positive way but I guess it's just a waiting game.
Thanks Maverick. I know you are very heavily invested here and I am happy for you to be my wingman anytime ;) but if you don't mind I will add some counter points for others to consider
Thanks for your post mate, I always enjoy your work. Some counter points above for others to consider. I remain of the view that human resource cost increases are going to be a real drag on profit growth going forward and OCA are the most exposed in this sector to the extraordinary and sustained rate of care cost inflation. Stocks that will do well in an inflationary environment, (let's not pretend inflation especially in the care and construction environment is transitory..no point in deluding ourselves) are those with pricing power.
Unfortunately OCA has no pricing power with the basic care side of their business and also with the Govt funded weekly care fees they receive on care suites. They have pricing power with their independent living units and as mentioned above they must redirect more of their efforts in villages they develop in the future towards independent living units if they want to drive satisfactory shareholder returns . The Waimarie greenfield development is a fabulous example of the type of development I'd like to see wherein the significant majority of the village is independent living units. Likewise the Waterford acquisition in Hobsonville is another superb template to replicate going forward. This recipe is a well proven, (SUM and RYM) way to generate huge gains for shareholders. Much more of this, please. I will watch with considerable interest what ratio of independent living to care suite units they develop from the blank canvas that is the Pukekohe site as this will give a valuable indication of their future direction.
Over time the market may accord a higher degree of satisfaction with the care suite model such that they can be repriced further or maybe this remains a drag on future profit growth, only time will tell. At this point I think its crystal clear OCA are not getting a satisfactory return for shareholders with the care side of their business so the market is discounting them well below their peers, and rightly so in my opinion. Its not screaming value...its just fair value as a value stock because the current business model amounts to driving a moderately powered car with the handbrake on. There is value here but it will be like watching grass grow which is why I will stay with just a moderate stake.
Not trying to be a sour puss here, just to highlight there are reasons this is currently cheap and those reasons aren't going to evaporate anytime soon. Happy to hold at $1.30 because the value is clear enough for anyone to see. I think that about SUM's (excuse the pun) it up for me at this point. Not much else for me to do or say about this one for now.
I'll probably get some more hate from someone for not being super duper positive...I suppose that goes with the territory of trying to be truly objective but where would the value be in the forum if all we did was pump each others tyres about the stocks we own ?
Its time for me to have a super long nap with this one :sleep:
PS If the Govt force this sector to share capital gains then this is a taste of what people will get...but is that what people really want ? https://www.nzherald.co.nz/business/...19b12a0d7d7338
looks like we might have a rights issue on our hands soon if all the gos on the SKT thread pans out. What's an appropriate rights issue discount to fund the purchase of Sky's Mt Wellington property to you reckon?
I have no intention of giving you any hate, but I do want to say this. Anyone who has ever invested in OCA, has known from Day 1, that they are a care focused business. OCA have always been transparent about that. Brent mentioned it several times in the video I posted the link to. This makes OCA different from the others in the sector, so maybe it is time analysts and investors started to accept this difference. Comparing OCA with RYM and SUM may not be the best way to approach things, given that they are actually different beasts.
Nobody can say they didn't know about this focus when they chose to invest. We all did. Some of us made our decision to invest based on that focus. Clearly most did not. If OCA investors no longer understand and support the focus on care, it is probably time for them to take their profits and invest in an aged care company whose focus they do support.
I think it is great to have a company offering an alternative way of securing retirement accommodation. Vivid's offering is for a village with fewer amenities and no rest home facilities. That may actually appeal to a slightly different target market. While they say that their residents will be able to share in market gains, given the massive recent low-interest rate stimulated price gains, I think the risk for some time is weighted currently to future losses or minimal gains (especially after refurbishment cost is taken into account.) However there remains the risk of post-Covid heightened inflation of course.
Disc: Arv, Oca, Sum investor
This alternative will be unattractive to the vast majority looking to enter retirement accommodation so I don't see it as any competition to OCA whatsoever.There are already umpteen villages like this operating around NZ where residents get all or nearly all of their capital back upon resale but of course they don't offer what the vast majority are looking for when they enter a village, in fact some of the ones I have been to over the years are quite isolating for many of the residents and are like mini ghost towns.
Let's be clear here. From day one Earl was singing the praises of the business transformational process and saying shifting the model to care suites was the panacea for lifting returns from care side of the business. That's why a lot of people like me invested, we all thought the care suites were going to be a gold mine. If improved returns from care are happening after rampant care cost inflation its certainly painfully slow, much slower than I believe anyone who originally invested expected. As recently as February 2021 Earl was saying he expected future care costs to rise in line with DHB funding. Obviously that's not happening. One of the reasons I can be super patient to see if this works out is I am free riding this. I only have previous profits invested, nothing more and nothing less. Its not an inconsequential sized share stake I can assure you, its 6 figures. I already invest significantly in ARV and am looking for the right time to get back into SUM.
I like your style and stock selection in this sector. No harm whatsoever in having a decent sized stake in ARV and SUM as well, in fact I think its a VERY good idea.
Ouch !! Very good information there mate, thank you. Stick around, you have much to contribute and offer. I believe the more communal facilities a village offers, the more community it generates and this is why the full feature villages ARV, SUM and RYM build are so incredibly popular.
Agree, a different model is a good thing, and will suit some. I would not like to see people encouraged towards this style of RV by family with an eye to an inheritance though.
One upside of Fletchers going with this approach in volume, over time, is that it will dissuade the government from imposing changes on existing property rights. Which it seems they are working towards, the favoured MO these days.
actually some people want to leave there money to there children over a company
I'm glad you said some cause my wife and I have seen hundreds of shocking examples of greedy families wanting money from their parents that they have had nothing to do with for years, they all of a sudden start showing an interest when the grim reaper appears on the scene and then the squabbles begin.