OCA - Oceania Healthcare

[Teitei]

For Bars brief review

Oceania Healthcare's (OCA) FY24 sales update was below our expectations. 2H24 sales softened from a solid 1H24 and is illustrative of the current subdued housing market. While recent commentary on its 'The Helier' development has been constructive, it appears the remainder of its new sales inventory is proving a tougher sell in the current housing market. But OCA continues to hold prices steady, and any uptick in sales activity is likely the positive catalyst the stock needs to sell its inventory and reduce debt. We still remain of the view that net debt should fall in FY25 and see this update more as a delay in its turnaround rather than a cancellation. Encouragingly, further non-core site sales at book value provide further support to its book valuation. OCA trades at ~0.45x book value and we retain our OUTPERFORM rating.

What's changed?



Earnings: FY24/FY25/FY26 underlying earnings down -24%/-9%/-4% on slower new sales
Target price: Decreased to NZ$0.95 (from NZ$1.02) due to lower annuity EBITDA and higher net debt.


New sales — solid sales at The Helier, softer elsewhere


OCA reported 2H24 new sales comfortably below our expectations, this is despite solid sales at its flagship The Helier development. In February OCA stated in news articles it had applications for/had sold 20 apartments and four care suites at The Helier, up from six in November (only one was settled in 1H24). These sales achieved in the six months since opening constitute ~25% of the apartments at The Helier. We believe this is a solid result, however, this implies OCA sold ~50 units from its other new sales inventory of ~330 units in 2H24. We view this as soft despite volatility in new sales period to period and the current subdued housing market backdrop.

In other words, another profit downgrade. Which downgrade is this - #2?

And the 'solid sales' at THe Helier - I recall that it was more 'negotiations for the sale of 20 apartments' or words to that effect?

[Breezy]

In other words, another profit downgrade. Which downgrade is this - #2?

And the 'solid sales' at THe Helier - I recall that it was more 'negotiations for the sale of 20 apartments' or words to that effect?

There are no target prices near the current market price so the worst and more is already priced in.

[Teitei]

There are no target prices near the current market price so the worst and more is already priced in.

But that's what some posters here and on the other site were writing when the sp was 80c!

[Breezy]

But that's what some posters here and on the other site were writing when the sp was 80c!

Dont know and my long term tp is more than double the current price (3 yrs) depends on what time frame your tp covers doesn't it.

[ValueNZ]

Sales - new units  184  128  154  250  275
Normalised EPS (cps)  8.1  8.2  6.3  8.9  10.3

The lines that I think are most interesting.  Shocking eps number for FY24, lowest ever.
Growth in underlying eps in their estimated figures for FY25 and FY26 are predicated on a massive uplift in sales of new units from 154 in FY24 to 250 and 275 in future years.

Those targets look "highly aspirational" to me and are not supported in any way whatsoever by sales performance in the last 2 years.  I guess we will see in due course but even if somehow they do manage to get to 250 in FY25 that only lifts underlying eps to an estimate of 8.9 cents, not far north of the 8 cps they have been averaging since they listed 7 years ago.

Yeah. NAH... a far more plausible forecast is for a slight recovery in sales numbers this year, maybe another 10-15% increase of FY24's number of 154, perhaps 180 if they do well and that maybe gets eps back to 8 cps for FY25.  Still believe there's simply no growth here and goal one is to get this company back to the average it has been earnings.  8 cps x a PE of 8 = 64 cents.

They keep building many more units than they can sell.  This happens year in, year out and has done for many, many years now.  Gearing must be pushing towards a very uncomfortable level, notwithstanding sales and contracts on some basic care villages and some land, which has to a fair extent already been eaten up with land purchases adjacent to the Helier at top market prices.   I suspect, given their truly woeful communication in the past, there's a real chance the directors made this surprise one-off update to soften shareholders up for a forthcoming capital raise when the result is announced.    Time will tell but a 1:4 at about 50 cents wouldn't surprise me.

Have you sold your shares Basil?

[Untamed]

Yes, he has.

Have you sold your shares Basil?

[Breezy]

Yes, he has.

Has he? I cant keep up.

[Greekwatchdog]

Has he? I cant keep up.

Has he? I cant keep up.

Momentum traders huh? Makes me wonder if they win or lose with all this whining.

Good grief OCA got clobbered by Covid (most in sector) this delayed their transformation, created a false economy with inflated Assets.

Its frustrating for sure, but seriously some of these so called traders need to have a good look at all the data not just the crap on a spreadsheet that shows EPS etc...

[Basil]

In other words, another profit downgrade. Which downgrade is this - #2?

And the 'solid sales' at THe Helier - I recall that it was more 'negotiations for the sale of 20 apartments' or words to that effect?

I lose count.

Has he? I cant keep up.

It helps if you actually read the posts lol.  Just in it for the dead cat reverse index exclusion bounce as I stated clearly when buying back into this in a very modest way.  Unfortunately, the dead cat didn't bounce or "meow" very much.  See post #1038    Yes, I think you can flip a coin on a capital raise, it's probably close to a 50% possibility with their ever-increasing debt ratio.

Its frustrating for sure, but seriously some of these so called traders need to have a good look at all the data not just the crap on a spreadsheet that shows EPS etc...

Analyzed this to absolute death over the years.   As much as I and many others wanted this to be a growth company, it isn't. There's no earnings growth here.  The growth is all in costs and assets but several years supply of unsold units does not grow earnings, it grows debt and the costs to fund that.  Their debt level will haunt them going forward unless they do something about it, but a cash issue will be eps dilutive so it's a no-win situation either way.  The only way to try and grow earnings is to dramatically lift the sales rate but that's simply not happening in a truly meaningful way, and I think Forsyth Barr are very seriously overly optimistic about sales estimates going forward.  The problem with DCF "valuation" models is wildly optimistic assumptions go in and wildly optimistic valuation answers come out.  Most likely the share price will go sideways for quite some time and dividends will remain suspended, also for quite some time is how I see it. 

Classic "Value Trap" is how I see OCA and the low or no dividends paid does not get you out of that trap.  Could languish around these levels for years.

[Waltzing]

Did that market update mean they are on track to meet expected profit.

[Teitei]

Analyzed this to absolute death over the years.  As much as I and many others wanted this to be a growth company, it isn't. There's no earnings growth here.  The growth is all in costs and assets but several years supply of unsold units does not grow earnings, it grows debt and the costs to fund that.  Their debt level will haunt them going forward unless they do something about it, but a cash issue will be eps dilutive so it's a no-win situation either way.  The only way to try and grow earnings is to dramatically lift the sales rate but that's simply not happening in a truly meaningful way, and I think Forsyth Barr are very seriously overly optimistic about sales estimates going forward.  The problem with DCF "valuation" models is wildly optimistic assumptions go in and wildly optimistic valuation answers come out.  Most likely the share price will go sideways for quite some time and dividends will remain suspended, also for quite some time is how I see it. 

Classic "Value Trap" is how I see OCA and the low or no dividends paid does not get you out of that trap.  Could languish around these levels for years.

Good summary of your analysis, Beagle.

And let's remember that OCA had been funding its dividends and operating cashflow deficits with debt - hence the requirement to stop dividends last year.  An absolute no no imo.

Must admit though that I thought that OCA sp would trend back to 70c due to the sheer number of shares (30m+) dumped during the index exit. Such is life.

[Teitei]

Did that market update mean they are on track to meet expected profit.

Impossible to assess without an update on sales values and margins.

I seriously wonder why OCA left those critical information out when they decided to do an update.  It is like they did the update grudgingly and with reservations?

[Breezy]

Haha the OCA bashers who were only 2 minutes ago holders and pumpers and will be holders and pumpers again at a future date, so predictable.

[Teitei]

Haha the OCA bashers who were only 2 minutes ago holders and pumpers and will be holders and pumpers again at a future date, so predictable.

I gave you my reasons for getting rid of the shares (as disclosed at the time) I bought during the index sell down. You are most welcome to challenge me on any of the reasons.

Refer to one post of mine where I attempted to pump the sp.  No wonder this thread has to be placed under STRICT - rightly so!

FYI, I was initially very heartened and pleased to see OCA finally providing the update until I read the contents.

[winner (n)]

Looking at the numbers released today, here are the volumes per half year (HY) and the Year on Year % change (Yoy%):

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H1 was +13% versus last year, H2 was +19% versus last year, overall is +16%.

Claims depressed property market etc etc holding back sales is a red herring to me

If REINZ reported property volumes is a proxy for market activity the last six months has been pretty strong.

Table shows growth in sales for ARV, OCA and SUM compared to general activity in NZ property market

What's happened to OCA new sales over last 6 months ...the 3% stands out as a really outlier eh ...something not right

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