RYM-Ryman

[Shareguy]

Forbar like the update. Outperform $7

[Shareguy]

I'd be pretty worried about this ..... Is there another cap raise coming to pay off the banks now?

"Given the continued uncertainty around market conditions in the near term,
we believe a prudent step is to seek amendments to some of our financial
covenant levels for upcoming testing periods. We are in positive discussions
with our lenders who remain very supportive of the business. We expect to
update the market on the outcome of this in the coming weeks."

Craigs in their May note did say a CR possible. So one would think that this was already in the share price. The announcement yesterday had a lower build guidance which will help as will over time the change from DMF of 30 % up from 20  %. But yes a CR is a possibility.

[Basil]

Forbar like the update. Outperform $7

Seems very "ambitious". What forward PE does that place them on?

[Shareguy]

Seems very "ambitious". What forward PE does that place them on?

A lofty 20.6 for FY25E BUT a less lofty 13.8 FY26E AND 10.7 FY27E. According to FB report out today

Don't forget no divi and possible cr.................

[KW]

Forbar like the update. Outperform $7

They must be hoping to get the mandate for the next cap raise 

[Shareguy]

Craig's latest.  No cap raise

The update reinforces our view that RYM will eventually turn around and probably doesn't need to raise equity, notwithstanding that it has sought covenant relief (no surprise to us). But it also reinforces that the turn around will take a long time, and even as it comes out the back end RYM will be a much lower growth business than investors have become accustomed to

[Basil]

Forbar look far too ambitious especially in light of the tone of yesterday's announcement. Craigs approach above, far more likely to be correct in my opinion

[Shareguy]

Gosh huge redundancy's. NZ and Aust ceo jobs gone. Dean has got the axe out with a big drop on overheads coming.

Moving from an internal to an external development model: RYM employs about c.300 FTE in its development team, including staff at head office and a number of employees directly on site (project managers etc). Going forward, RYM will outsource construction, retaining only some elements of design in-house, which is likely to see the majority of its in-house team disestablished. RYM's evolving view is that the internal design-build model has lead to inefficiencies creeping in over time, as long serving managers have not been exposed to evolving industry best practice.

So pricing up and costs reduced...............

[winner (n)]

Gosh huge redundancy's. NZ and Aust ceo jobs gone. Dean has got the axe out with a big drop on overheads coming.

Moving from an internal to an external development model: RYM employs about c.300 FTE in its development team, including staff at head office and a number of employees directly on site (project managers etc). Going forward, RYM will outsource construction, retaining only some elements of design in-house, which is likely to see the majority of its in-house team disestablished. RYM's evolving view is that the internal design-build model has lead to inefficiencies creeping in over time, as long serving managers have not been exposed to evolving industry best practice.

So pricing up and costs reduced...............

No wonder Forbar calling 7 bucks

[Basil]

They have now dismantled essentially a lot of the foundational principles the company was built on.  At its peak, (which was more than a decade ago), RYM could do no wrong.  A fully internalized development model Simon Challis had built delivered great units at extremely healthy development margins, the 20% DMF and fixed fees for life were industry leading and there was so little competition they could ask very high prices and had no trouble whatsoever selling them.

To me, it seems with the passage of time and "leadership" of very questionable quality a lot of fat cats inside the company got complacent and lazy, highly questionable practices around accounting issues were instigated in a desperate attempt to keep up the illusion of high growth and no doubt pay extremely high bonuses to management.  Meanwhile competition has become rampant and others, notably SUM, kept refining their business model

Externalizing the development model is yet another admission of failure to add to their litany of other failures in recent years.  Going forward their growth rate will be a LOT lower than in the past and that's only going to be achievable once the property market stabilizes and starts going up again.

A forward PE of 20 is absolutely ridiculous for a company in the state RYM is in now and Forbar's target is, quite frankly, laughable as are their assumptions around eps growth rates in future years.

As I see it ever since SUM listed, they've eaten RYM's breakfast, lunch and dinner for them.  While RYM have gone from one fiasco to another SUM have gone from strength to strength.  I think Kingfish's manager is spot on to be holding four times the portfolio allocation to SUM as they have to RYM.  Chatting with him after the AGM I think he would like that ratio to be even higher so look out for them increasing their SUM stake more or reducing their RYM stake further.

Its interesting that RYM are still calling the real estate market as very slow or words to that effect and no recovery expected in the next six months.  Meanwhile SUM seem to have a lot fewer problems selling their units.  I think RYM have some village sites of very questionable desirability, (for example their Lincoln road site in Henderson Auckland which frankly has very little if anything going for it) and that's a key reason they are struggling to sell down their units.  Put it this way, I wouldn't give you anything for a unit there but would be all over a unit at SUM waterfront village in Hobsonville if I was a unit buyer.

I think the whole sector is presently artificially buoyed by the ARV cash windfall and reality will bite next year when this cash waterfall stops and the house price recovery proves much slower than many expect. 

The one thing for sure you can take out of all of RYM changes including slowing the build rate, is it will make life a bit easier for the others in this sector. 

[Glenorchy]

I have worked for Ryman and for Summerset but work for neither now. Summerset had far lower  staff to resident ratio in their villages and much higher staff turn over. For people with dementia or who need a full-time care-giver such things matter. At Summerset you were allowed 1 pen a week tops if you lost your pen or it walked you needed to bring one from home. If you used too much paper one week on the printer questions were asked. I mention this as a way of depicting mentality towards everything. Ryman, you could have all the pens and paper you needed. Summerset is the better run business, they manage costs closely and they're probably the better investment but if I had a sick relative I would choose Ryman every day of the week.

I think Summerset runs a business tilted towards affluent 70 and 80 year olds who want company and security but it doesn't offer much care. However, in the long run everyone needs the care and that's where Ryman is best but it's not a great money maker and it's under-funded. If Ryman can better monetise the fact they take better care of you for the rest of your entire life - then they'll be more successful. How they do that is the question I guess.

Disclaimer: Hold neither stock.

[BlackPeter]

They have now dismantled essentially a lot of the foundational principles the company was built on.  At its peak, (which was more than a decade ago), RYM could do no wrong.  A fully internalized development model Simon Challis had built delivered great units at extremely healthy development margins, the 20% DMF and fixed fees for life were industry leading and there was so little competition they could ask very high prices and had no trouble whatsoever selling them.

To me, it seems with the passage of time and "leadership" of very questionable quality a lot of fat cats inside the company got complacent and lazy, highly questionable practices around accounting issues were instigated in a desperate attempt to keep up the illusion of high growth and no doubt pay extremely high bonuses to management.  Meanwhile competition has become rampant and others, notably SUM, kept refining their business model

Externalizing the development model is yet another admission of failure to add to their litany of other failures in recent years.  Going forward their growth rate will be a LOT lower than in the past and that's only going to be achievable once the property market stabilizes and starts going up again.

A forward PE of 20 is absolutely ridiculous for a company in the state RYM is in now and Forbar's target is, quite frankly, laughable as are their assumptions around eps growth rates in future years.

As I see it ever since SUM listed, they've eaten RYM's breakfast, lunch and dinner for them.  While RYM have gone from one fiasco to another SUM have gone from strength to strength.  I think Kingfish's manager is spot on to be holding four times the portfolio allocation to SUM as they have to RYM.  Chatting with him after the AGM I think he would like that ratio to be even higher so look out for them increasing their SUM stake more or reducing their RYM stake further.

Its interesting that RYM are still calling the real estate market as very slow or words to that effect and no recovery expected in the next six months.  Meanwhile SUM seem to have a lot fewer problems selling their units.  I think RYM have some village sites of very questionable desirability, (for example their Lincoln road site in Henderson Auckland which frankly has very little if anything going for it) and that's a key reason they are struggling to sell down their units.  Put it this way, I wouldn't give you anything for a unit there but would be all over a unit at SUM waterfront village in Hobsonville if I was a unit buyer.

I think the whole sector is presently artificially buoyed by the ARV cash windfall and reality will bite next year when this cash waterfall stops and the house price recovery proves much slower than many expect. 

The one thing for sure you can take out of all of RYM changes including slowing the build rate, is it will make life a bit easier for the others in this sector. 

So difficult to please a beagle ... If they increase their building stock, than they clearly are oversupplying an already saturated market (ask the beagle), and if they reduce their build rate then - clearly - their (building-) growth rate drops. How can they dare?

So, they did everything as you asked for and now you are really hitting them hard ...

I recon what you don't seem to see is that their earnings will grow the fastest if they stop building, and clearly externalizing the building activity makes them much more flexible looking into the future. Much easier to stop building new houses, if the builders are not your employees.

All companies improve by focussing on core activities and externalising the rest. I doubt that building houses is a core activity for a retirement village. Looking after its residents, however is.

[Shareguy]

According to the latest annual reports

Ryman had 964 employees who earned over $100k

Summerset had 545

According to Craig's RYM will also look to downsize its village support office, which employs c.600 people across the Group (note this excludes development overhead; if this is included total support FTE is c.900

Ryman have announced price increases and are going to slash staff numbers. I would suspect that the disclosures over $100k are going to dramatically reduce as building moves to outside contractors and regional support hubs rationalised.

These changes are material and are going to substantially add to earnings.

I'm not expecting any real turn around until second half FY25. Will be restructuring costs so FY2026 onwards is where I'm picking we will see the results.

If the board can execute these changes well and continue with being the readers digest most trusted brand then I'm expecting profitability to improve. I also think the chances of a capital raise are reduced, but still possible.

Craigs latest has a increased TP of $5.93 Outperform.

Disc/ Have recently sold down 25 percent to pay tax and have a low average cost. Plan is to keep the balance long term.

[Basil]

All companies improve by focussing on core activities and externalising the rest. I doubt that building houses is a core activity for a retirement village. Looking after its residents, however is.

There's never been any serious money in care and there never will be.  The real coin has always been in property, both developing it and especially reselling it.  I think the manager Matt Peak of Kingfish sums the relative situation between SUM and Ryman up really well in his annual review from page 10 in Kingfish's annual report. https://kingfish.co.nz/assets/Investor-Centre/Kingfish-Annual-Report-2024.pdf
I asked him after the annual meeting whether they are interested in Oceania.  Too much care in their business model is a brief synopsis of what he said.

I think Summerset runs a business tilted towards affluent 70 and 80 year olds who want company and security but it doesn't offer much care.

That's where the serious money is.

However, in the long run everyone needs the care and that's where Ryman is best but it's not a great money maker and it's under-funded. If Ryman can better monetise the fact they take better care of you for the rest of your entire life - then they'll be more successful. How they do that is the question I guess.

That's a huge "IF"...they have an absolute mountain of work to do and very strong headwinds from Govt budgetary constraints around care costs.

[Glenorchy]

That's where the serious money is.

...................

That's a huge "IF"...they have an absolute mountain of work to do and very strong headwinds from Govt budgetary constraints around care costs.

Agreed that's where the serious money is now. Lifestyle villages. And that may continue to be the case which is why Summerset is probably the better investment right now.

However, care doesn't have to be constrained by the govt. It currently is because we are still serving the Silent generation but when the baby-boomer's need care who's to say what pricing can be put on a premium care product given demand and supply will be seriously misaligned? Is a superior private health offering given it's critical always destined to earn less than a property play given it's more of a choice? I don't know well above my pay-grade.