For Bar latest targets issued this morning for sector.
Oeania Healthcare OCA 1.32 1.80 13.4 20.0 OUTPERFORM
Arvida ARV 1.70 2.15 13.9 21.4 OUTPERFORM
Ryman Healthcare RYM 15.00 14.10 24.6 44.7 NEUTRAL
Summerset SUM 12.05 13.25 18.5 35.2 NEUTRAL
Printable View
For Bar latest targets issued this morning for sector.
Oeania Healthcare OCA 1.32 1.80 13.4 20.0 OUTPERFORM
Arvida ARV 1.70 2.15 13.9 21.4 OUTPERFORM
Ryman Healthcare RYM 15.00 14.10 24.6 44.7 NEUTRAL
Summerset SUM 12.05 13.25 18.5 35.2 NEUTRAL
W69, They are saying the care side is the place to be in the sector..Hence upgrade for ARV
Mudfish yeah sure..
Current Price
Target Price
12 month forward PE
12 month forward EV/Annuity EBITDA
Very happy to still be overweight in this sector
Extract ....
Key take-outs from our recent aged care tour
We recently visited 11 villages in the prospering retirement area of the North Island's golden triangle. Two villages in Hamilton, one in
Cambridge and eight in Tauranga. The village mix was dominated by the listed operators (ARV; 3, SUM; 1, RYM; 2 and OCA; 2),
however, we were also able to gain insights into the private market with three villages owned by private operators.
Key takeaways from our aged care tour
Construction issues evident but far less significantthan expected: Given the recent newsflow surrounding lead times and supply
shortages for numerous building products we assumed this may start to impact build rates. However, while the operators
acknowledged pressures through increasing construction costs and lead times, the impact was far less material than
expected. There was nothing to suggest that recent pressures will have an impact on near-term build rates.
Very strong demand supported by housing market; little to suggest it will slow near-term: Demand anecdotes, that there has
been little slowdown to sales activity following the pent-up demand surge post lockdowns, were consistent across all operators.
Some operators are now beginning to accelerate development plans to keep up with demand, and the strong housing market will
continue to aid sales activity.
Almost all premium care beds are being sold under an ORA: Given the relative infancy of the care ORA offering, the resident
demand profile versus a care bed with a premium accommodation charge (PAC) is still relatively untested. However, amongst the
villages we visited it was clear that all (or nearly all) care beds that can be sold under an ORA are. Our previous assumption was that
~80% of premium care beds would be sold under an ORA but this now appears conservative.
Limited resident resistance to "double-dipping": A clear and viable risk for the care ORA offering is either resident or government
push back to aged care operators receiving deferred management fee (DMF) proceeds from residents who purchase the right to
occupy a care unit after previously occupying an ILU within the same village. While this could have an impact long-term there was
little to suggest that it is an issue for residents or will impact demand. Although, we did note a number of references from sales
managers to increased conversations about DMF amongst family members for those moving to a care suite.
Aged care staffing shortages are an issue: Aged care operations have been under pressure for some time, driven by a multitude of
issues, one of which has been a lack of staff. Our tour suggests there has been little change to this trend and if anything staffing
issues have got worse, accentuated by a lack of immigrants. Some operators are now finding it increasingly difficult to attract New
Zealander's given the lack of government funding relative to other areas of the healthcare system.
Emphasising the importance of the continuum of care: A consistent message across all operators was the importance of the full
care continuum, it appears resident demand and desire for integrated care has lifted materially post lockdowns. While this isn't a
new trend, it emphasises the importance of a strong care offering despite the declining profitability.
Whitepaper risk perceived as low: Newsflow around the Commission for Financial Capability (CFFC) draft whitepaper released in
December has yet to abate, if anything it has increased over the past month. Numerous suggestions have been made that the
retirement village model in New Zealand requires dramatic change. As consistent with other anecdotes across the industry, this
suggestion was quickly abolished by all operators we visited. While it was acknowledged there is the need to tighten regulation
around exit fees and the timing of payments, the messaging was very clear that the potential introduction of capital gains would
undermine a sector that has very high resident satisfaction levels and continues to provide high quality care.
Pent up house price inflation still to come: Our recent analysis suggests retirement village unit pricing has started the year
strongly, driven predominately by SUM (see our report titled "Montgomerie-Ibbotson Aged Care Pricing Index", published 10 March
2021 for more detail). Given the material shift in New Zealand house prices over the past year (c. +20%), the retirement village
operators have plenty of room to increase prices further. Numerous anecdotes on our tour suggested that while prices have
increased modestly in recent months there are more price rises on the horizon as some operators opted to delay pricing decisions
in light of continued COVID-19 uncertainty through the second half of CY20.