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As i mentioned on the EBO thread, Huntleys have today just commenced coverage on a large number of NZSE stocks.
Ryman is another one that they have as a sell:
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We initiate coverage on RYM with a Sell rating. Valuation appears rich at 23x P/E FY08E EPS
Investment Risks
RYM could potentially face occupation risk if it is unable to find buyers of its retirement homes. This could occur on account of higher competition or a deterioration in the level of service rendered. RYM incurs the cost of maintenance, refurbishment and marketing of a vacated unit until such time a new resident is found. Hence higher vacancies can squeeze margins.
House price inflation has a significant bearing on the company’s profits. Since RYM sells occupation rights based on the current market value of the property a rising housing market will considerably increase resale value of existing properties. It is estimated that RYM is sitting on NZ$84 m of unrealized gains spawned by a three year property market boom. These will be realized as and when units are vacated and are re-priced to new occupants. However a falling market will have an adverse impact on resale gains and therefore profits. It will also impact sale of new units because potential residents will hesitate to sell their own properties in a weak market and move into a retirement home.
RYM’s care fees are quite dependent on DHB’s ability to fund subsidised patients. DHB also control licences for retirement hospitals and beds. Any change in the amount of subsidy or legislation will negatively impact RYM’s lucrative care fee revenues.
RYM lacks management bandwidth. Managing Director Kevin Hickman’s involvement in the business remains critical.
Construction delays and cost over runs could undermine profitability and returns. Fortunately RYM has a very good track record of project execution and management.
Ryman does not pay any income tax. Gain on sale of occupation rights forms the biggest component of profit. This is presently treated as capital gains for tax purposes. For instance as per the company tax rate of 33% RYM should have paid NZ$11.5m in taxes during FY06. However this was completely offset by gain on sale of occupation rights of NZ$7.54m and depreciation and interest shelter of NZ$3.2m. There remains a risk that profit from occupation rights could be taxed in future.
Valuation
At the current valuation of 23x P/E FY08E earnings RYM is trading well ahead of historic valuations of between 13x and 16x forward P/E. We reckon that the market is banking on the company besting its 15% long term EPS growth target. Notwithstanding RYM’s strong reputation and attractive sector opportunities we find the valuations demanding. Our fair value of $NZ1.61 is based on 16x P/E FY08E EPS
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NZ's Ryman sees 15 pc/year earnings grow
New Zealand's biggest listed aged-care provider Ryman Healthcare Ltd expects earnings will expand by 15 per cent in each of the next five years as an ageing population and booming property market underpin its growth.
The company develops, owns and operates retirement villages, rest homes and hospitals, with 17 existing sites around New Zealand and two under development.
Overall it caters to more than 2500 people in its facilities and expects steady growth as New Zealand's baby boomer generation retires.
"We've managed it for four or five years now, and we envisage continuing to do it for at least that period in the future," chairman David Kerr said in an interview.
He said the company faces few headwinds.
"People to tend to come to us because something happens, they need a bit more assistance, and that's not going to change with external factors such as the economy or the New Zealand dollar."
In 2004, New Zealand had 54,000 people aged 85 and over, a number forecast to increase to 320,000 by 2051.
Exposure to New Zealand's ageing population is cited by analysts as Ryman's main strength, with brokerage ABN AMRO Craig describing it in a research note as "a quality growth story with a defensive business model and a strong earnings outlook".
Ryman, with a current market value of $1.2 billion, joined the list of top 15 companies in June last year. It caps off a swift rise for the Christchurch, South Island-based company, which listed in 1999 with a capitalisation of $135 million.
Its success has caught the eye of Australian investment firm Bab****& Brown, who took a 6 per cent stake on February 22. Mr Kerr said Bab****& Brown have said they will be a passive investor.
Bab****and Brown's stake raised the possibility of a full takeover move being made on Ryman. The company has an open register with the largest shareholder, private investor Emerald Capital, holding 16 per cent.
"I'm sure the entry of Bab****and Brown introduces that thought, but. . .as a board we don't spend a lot of time agonising over what ifs, and I'd put a takeover in that category," Mr Kerr said.
Ryman's shares closed up 5c at $2.31. The company had a five for one share split in January to increase the stock's affordability, Mr Kerr said.
One of the key drivers for Ryman's growth has been the hot New Zealand housing market, where the median house value has more than doubled since 2001.
Ryman benefits because it sells new units at a market rate, and also pockets the difference in market value when a vacated unit is sold to new occupants.
Its other main revenue stream is occupation fees from residents at its hospitals and rest homes.
Mr Kerr said average turnover in retirement village units is normally several years, which flattens out short-term fluctuations in the property market.
Even if the growth in the housing market should fall sharply from its current level of about 10 per cent, Ryman would continue to see the gains on future sales, he said.
"A steady increase in the cost of domestic housing is all we need to factor in to achieve our 15 per cent."
Ryman keeps a "landbank" of sites for at least three years ahead, although Mr Kerr said sites are getting harder to find as the value of urban land across New Zealand increases.
"At any moment in time we're looking at three to five sites."
The company's policy is to develop 300 retirement units and 100 hospital beds a year.
Mr Kerr said the target was one it could easily accommodate within its existing capital structure, and did not anticipate borrowing or capital raising to fund growth.
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With March balance date I guess this is confirmation that things are on track.Strongest day for a while.
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One thing I love about being a Ryman holder is reporting season: :D
Wednesday, 23 May 2007
Ryman on a roll with retirement building boom
Ryman Healthcare is on a roll, promising 20 per cent profit growth this year, after 18 per cent growth last year.
The listed Christchurch retirement village firm's shares yesterday rose 5c to a record 258c, valuing the company at $1.29 billion, after announcing an 18 per cent increase in annual net earnings to $41.6 million, from the previous March year.
A final 2.2c dividend, payable on June 22, increases the annual rate from 2.3c to a non-imputed 4c a share, after allowing the the five-for-one share split earlier this year.
Chief executive Simon Challies said the 33 per cent jump in revenue to $190.25m for the year to March 2007 was the result of a bigger than usual building programme of 300 units (apartments and townhouses) with more than half sold.
In the past, the company, with 19 retirement villages had built about 150 units a year and it has been targeting profit growth of 15 per cent.
Australia's aggressive investment bank Bab****and Brown (B&B) took a 6 per cent stake in Ryman early this year after buying the shares from Ngai Tahu which retains 6.5 per cent.
The pair have an agreement on voting and have first dibs on each other's stake. That brought speculation B&B want to eventually make a takeover bid but other shareholders with bigger stakes said in February they were not sellers.
Challies said at the end of March Ryman had opened three new villages and that was giving it momentum. There would be no let up, with the increased pace of the building programme to continue. "That's the plan going forward to do at least 300 units per annum."
Demand for the units was strong "and we have good pre-sales at most of our new villages" he said. The building blocks were in place for even better results.
"We believe we are on target to achieve earnings growth of 20 per cent in the year ahead," he said.
"If anything has been holding us back it has been stock really, units to sell," Challies said.
Three villages were under construction, including The Anthony Wilding retirement village at Aidanfield in Christchurch, and four more villages were in the planning.
Ryman has more than 3000 rest home and retirement village beds and employs more than 1500 staff.
Challies said it was extending The Rowena Jackson Retirement Village in Invercargill, the Julia Wallace Retirement Village in Palmerston North and the Malvina Major retirement village in Khandallah, Wellington.
In Auckland it was building the Edmund Hillary Retirement Village in Remuera where the first residents had moved in. That would be a "landmark" village and eventually be home to 500 residents.
Ryman had enough land to build another 1700 units.
In Christchurch, the rest home at the Aidanfield retirement village opened in December and the first townhouses opened to residents in the last few months.
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The SP has been coming back to more realistic levels over the last few weeks to a point where it is starting to be worth keeping an one eye or the other on it.
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Agree-around $2.00 seems a possibility now.
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ENP might like a good read of this thread , will give him a good history of ryman, sentiment wise
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hi ratty,
i notice there's a choice of seven rym threads, but very few have been active in the last three years -- just like the post before yours.
seems like you were spot on with your choice of this title -- way back then, and now too.
noticed another thread called "why i sold my rym shares"... by guess who?
have you bought back in, or just a wide-ranging researcher? cheers, scamper