Originally Posted by
Beagle
That would be wonderful if it could happen.
I respect my friend Maverick when he says that basic care is still marginally profitable but all my instincts as a bean counter tell me it all depends upon the cost base you use. If you amortize a fair proportion of managements time and head office overhead and costs to the basic underfunded care side of their business, (which is still a big component of their existing business model), I would respectfully suggest they make a significant loss on the provision of those services. What is completely without debate is that it does not give a satisfactory return on capital employed.
Even after the complete scheduled transformation of their business model which is still about 5 years away basic care that is woefully underfunded by Govt makes up about 30% of their business model, (from memory), and its clear in this very socialist political environment Oceania will never get an acceptable return and is statute barred from charging those customers more as I understand it.
Therefore OCA's business model for the foreseeable future is analogous to driving a pretty good car with the handbrake partially on. I say a pretty good car because I believe most people really want a full feature retirement village with all the bells and whistles not a boutique one like OCA generally provide. The evidence with SUM backs this up with many units presold long before delivery and long wait lists at many of their established villages. SUM is in effect, the Mercedes-Benz of this sector. With OCA you can't take that pretty good car down to the mechanic and get the handbrake to release properly straight away and that's why this car is cheap and will probably stay cheap for the foreseeable future.
Over time my hope is that they will continue their business model transformation such that they move further and further away and eventually completely eliminate the provision of basic care services. The handbrake will be fixed then but that's maybe 10 years away and only if management continue to transform their business model.
Sadly, the time is coming in N.Z. when if all you can afford is affordable Govt funded basic level late stage care, its probably going to be a case of good luck finding a decent operator to provide it. That is the future this socialist Govt is setting old folks up for...hurting the very people they are supposed to represent...oh the irony !
I will try and remain a shareholder for a few more years and see if they can make any meaningful progress but my patience to see acceptable returns to shareholders on their risk capital employed is not infinite. One supposes that with the massive explosion in Covid cases in N.Z. (over 13,000 today) its inevitable we will see some deaths in care facilities for the various listed operators soon and that's not going to help market sentiment !