OCA - Oceania Healthcare

[Buzz]

I think OCA is in all sorts of bother

Why exactly do you think this, what is your thesis? Spell it out for us 'longs' who are apparently blind to something important that makes our investment so vulnerable. Perhaps add into this as well, why you said OCA is prone imminent financial meltdown, or words to that effect.

Thank you.

Crickets.

[Basil]

Yeah, the worst that could  happen here is a HGH style deeply discounted capital raise to get on top of their debt.  Talk of OCA's demise is a load of rubbish. There is however a very real risk that earnings could stay flat for several more years. That's exactly what the market is saying will happen with the share price where it is . (See ARV thread for Forbar's forward eps for that stock which is very sobering stuff)

[ValueNZ]

There is however a very real risk that earnings could stay flat for several more years.

True, that's why as investors we should be looking 10 years in advance. OCA is doing the right thing, they could easily boost earnings if they wanted but instead are choosing to grow the float, which is IMO currently more value accretive.

The questions we should be asking ourselves are:
What is Oceania's asset base likely to be in 10 years? And what implication does this have for earnings at a low ROA? What would an individual be willing to pay for this large asset base in a private transaction?

Even without this "pot of gold" at the end of the rainbow, even today's earnings are a pretty decent return. Maverick posted this a couple months ago.

"If OCA make the usual 8c /share of the last 5 years and you can now buy that share for 60c ....that`s a 13% P/A.

If OCA manage to sell that $363m of available new stock and over the next 2 years which should make a progressive profit up to $14c/share 2026...thats 23% P/A"

I see Oceania as having a low downside (usual 8c /share), while having an incredibly high upside, with the latter being more likely.

[Basil]

True, that's why as investors we should be looking 10 years in advance

Each investor is different.  You can't interpose your timeline onto others as their appropriate timelineSomeone in their 70's who needs dividend income for retirement would probably be well served considering a different investment.  The prognosis for the entire sector in terms of dividend payments in the next few years is grim.

What would an individual be willing to pay for this large asset base in a private transaction?

I think that's largely irrelevant as we've seen time and again, good solid takeovers offers rejected out of hand because it doesn't serve the directors best interests. ARV @ $1.70 and STU @ $1.90 are good examples.

Famous investors like Ben Graham have set the benchmark that no growth companies should trade on a PE of 8.5 when the risk free rate is 4%, (currently the 10 year N.Z. Govt stock rate is 4.9% which implies a no growth PE of just under 8.  This takes into account market risk, stock specific risk and provides a fair risk adjusted premium for equity risk.  A PE of gives an earnings yield of 12.5%.  Multiply 8 x 8 cps = 64 cents so the market is saying and I agree with the market, the shares are currently fairly priced and are likely to remain around about where they are until such time as OCA can prove they can grow earnings.
An earnings contraction cannot be ruled out either as they dial back their build rate.  As noted above ARV's outlook eps outlook makes for very sober reading.

If OCA manage to sell that $363m of available new stock and over the next 2 years

Such a scenario does not seem even remotely plausible to me.  They have an ocean of unsold stock and their most recent run rate of care suites, of which they have several hundred, suggests more that 4 years to sell down existing stock and that assumes they completely stop building new units, which of course won't happen, its likely they will progress future developments at a reduced run-rate.
I know it's not a popular view but I hold it nonetheless and I see the shares as fairly valued at the current level of 63-64 cents.  The future direction of the share price will likely be very heavily influenced by the rate at which they can reduce their unsold stock.  I only bought a very modest (<2% portfolio position) on the recent index exclusion sell down.  It's bounced a bit, (dead cat bounce which was the predominant reason I bought) and the very modest level of my share investment here is nothing more meaningful than a distraction so I sold it down recently but remain with a moderate position in the bonds.
Underpinning that decision was the fact that forecasts I have seen for even the market darling SUM who are executing with absolute perfection are for only very minor eps growth in the years ahead.  Both ARV and RYM face serious earnings per share challenges too.  OCA is very unlikely to be any different to the others.

I actually don't think the entire sector provides decent returns in any environment other than a booming housing market.

[ValueNZ]

Each investor is different.  You can interpose your timeline onto others as their appropriate timelineSomeone in their 70's who needs dividend income for retirement would probably be well served considering a different investment.

No way anyone should be in equities that has a timeline of less than 10 years.

The prognosis for the entire sector in terms of dividend payments in the next few years is grim.
  I think that's largely irrelevant as we've seen time and again, good solid takeovers offers rejected out of hand because it doesn't serve the directors best interests. ARV @ $1.70 and STU @ $1.90 are good examples.

I wasn't suggesting that OCA will get taken over (although it's possible), just to view the purchase of the stock in the same way you would for the entire company. I think ARV rejecting the $1.70 takeover bid was actually in the shareholder's best interests. I wouldn't want OCA taken over at $1. Maybe a $1.50.

Famous investors like Ben Graham have set the benchmark that no growth companies should trade on a PE of 8.5 when the risk free rate is 4%, (currently the 10 year N.Z. Govt stock rate is 4.9% which implies a no growth PE of just under 8.  This takes into account market risk, stock specific risk and provides a fair risk adjusted premium for equity risk.  A PE of gives an earnings yield of 12.5%.  Multiply 8 x 8 cps = 64 cents so the market is saying and I agree with the market, the shares are currently fairly priced and are likely to remain around about where they are until such time as OCA can prove they can grow earnings.
An earnings contraction cannot be ruled out either as they dial back their build rate.  As noted above ARV's outlook eps outlook makes for very sober reading.

Except OCA is growing its asset base very quickly... AKA not a no-growth company as this will eventually translate to EPS growth.

Such a scenario does not seem even remotely plausible to me.  They have an ocean of unsold stock and their most recent run rate of care suites, of which they have several hundred, suggests more that 4 years to sell down existing stock and that assumes they completely stop building new units, which of course won't happen, its likely they will progress future developments at a reduced run-rate.

Only time will tell who was right I guess.

[Basil]

Except OCA is growing its asset base very quickly... AKA not a no-growth company as this will eventually translate to EPS growth.

They have a 7 year history of no growth in eps and ARV has 10 years under its belt with the same result.  Even RYM which is a huge company has been in existence since 1996, 28 years, is suffering from eps contraction is this market which renders your assumption that growth in earnings will eventually come as baseless.  They have to prove to the market they can grow eps.  OCA and ARV have both failed in that regard and that's the reason both their share prices are depressed.  RYM also struggling and reflected in their share price.  Even SUM who are widely regarded as executing with true excellence which were ~ $9 four years ago when the pandemic struck have only recovered a couple of bucks, which is not much for investors who get a low dividend yield from them.  Size is no guarantee of earnings growth.  Even executing with absolute precision as SUM are doing is only generating very tepid eps growth which brings me in a nice circle back to my thesis that equity investment in this sector is best avoided in all conditions other than a booming housing market.  Even then in those conditions, which we may not have again for a very long time due to the lack of affordability of houses, maybe you are better off owning your own rental properties?  With vast amounts of unit supply coming to the market from listed and unlisted operators, my contention is for the foreseeable future, the boom times this sector once enjoyed, which neither OCA nor ARV have been able to capitalize on, are over.  Bond returns from this sector, purchased on the secondary market at circa 7% yield to maturity provide a satisfactory return in my opinion and I hold a moderate position of corporate bonds in ARV and OCA.

[Mos]

Solid update. Sales green shoots.
https://www.nzx.com/announcements/429532

[Untamed]

Well this is very interesting. I have still not received a response to the three emails sent - the last one, directly to Brent himself. I know of at least two others who have had zero response to their communications.

The timing of this announcement feels like an attempt at appeasement/damage control. Doesn't excuse their complete lack of respect for shareholders, but the positive news is very welcome.

Solid update. Sales green shoots.
https://www.nzx.com/announcements/429532

[Greekwatchdog]

WOW I am going to go have a drink. An update from this lot is worth celebrating.

[winner (n)]

Seems Oceania only sold about 69 new units in second half of year H224 .....new sales about the same as H223

No wonder a bit light on real detail ...hopefully thinking the market will go into raptures with some big numbers

Continued growth in resales is good .....but the new sales not good.in the context of more sales and even more sales

Getting the OCA guru on other channel to check this ...but I think I'm right

[winner (n)]

All very vague that announcement

Unlike Arvida no mention of sale prices or margins .....in other words an indication of underlying profit

Maybe Brent too embarrassed to come out say the FY result not that good.

The no growth in H2 sales could be put down to them apparently putting some H124 sales into H223 (just heresay I read on other channel)


My reading ......unless much higher development margins than in the past there will be only a modest increase on last years $58.6m underlying npat .....but they'll rave on about cash flow and balance sheet instead

[Teitei]

All very vague that announcement

Unlike Arvida no mention of sale prices or margins .....in other words an indication of underlying profit

Maybe Brent too embarrassed to come out say the FY result not that good.

The no growth in H2 sales could be put down to them apparently putting some H124 sales into H223 (just heresay I read on other channel)


My reading ......unless much higher development margins than in the past there will be only a modest increase on last years $58.6m underlying npat .....but they'll rave on about cash flow and balance sheet instead

I make new sales to be 154 units vs 128 units in F2023 - still way down on the 184 units & 222 units in F22 and F21 respectively. 

No mention of average sale price and margins - could be bad news lurking there indeed.

St Helier must be a real drag on OCA given how little OCA is talking about this super premium hyped-up development. 

[850man]

still way down on the 184 units & 222 units in F22 and F21 respectively

Yeah but those were years when money was almost free and the whole housing market was going nuts. Hopefully we don't see that ridiculous level of stimulation again

[Greekwatchdog]

I make new sales to be 154 units vs 128 units in F2023 - still way down on the 184 units & 222 units in F22 and F21 respectively. 

No mention of average sale price and margins - could be bad news lurking there indeed.

St Helier must be a real drag on OCA given how little OCA is talking about this super premium hyped-up development. 

Why compare F21 & F22? Market is totally different beast then too today. It was free money back then and property sector was on steroids'. Its not today

[BlackPeter]

Solid update. Sales green shoots.
https://www.nzx.com/announcements/429532

Agree - quite positive, and they deserve praise for providing an update. Lets hope this is the start of a new reporting pattern

I make new sales to be 154 units vs 128 units in F2023 - still way down on the 184 units & 222 units in F22 and F21 respectively. 

No mention of average sale price and margins - could be bad news lurking there indeed.

St Helier must be a real drag on OCA given how little OCA is talking about this super premium hyped-up development. 

Good to see sales (both new as well as re-sales) improving - we well might have passed the bottom! And sure - if we are currently on the early incline after rock bottom, nobody in their right mind will expect for FY24 stellar returns.

Good to see as well an update on the divestment front, and hey - they talk about $40m in line with book valuation. Maybe NTA  does mean something after all when trying to value companies?

Anyway, but lets not allow some  good news to spoil the bashing party ... I am sure some people around this thread will just keep doing whatever they think they are best at, whether it makes sense or not.