OCA - Oceania Healthcare

[Basil]

Likely that SUM was "window dressed" on 30 September and today unwound that.
Not the start of anything.  SUM holding up better than most because cream always rises to the top.

[Basil]

While the provision of quality aged care is core to our
mission, we have pursued a strategy of reducing the
number of traditional care beds in our portfolio. Last year
we divested four of our smaller care centres reducing the
needs-based composition of our portfolio. This strategy
will continue, and the proportion of care suites in our
portfolio will increase. Care suites enable an acceptable
return on investment to be achieved within a quality care
setting.


OUTLOOK
The aged care sector is contending with unfunded
staff cost increases, acute labour shortages and
additional costs associated with tackling Covid, as
well as general cost inflation. While there are some
signs of conditions stabilising, no government funding
top-up is expected. Minister of Health Andrew Little
has indicated nurse pay parity is on the agenda, but
we believe this is unlikely to be resolved until mid
next year at the earliest. This means care margins will
continue to be under pressure.

Interesting comments from CEO of Arvida today as they apply to the care side of their operation.
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ARV/399910/380409.pdf

[Plata]

Interesting comments from CEO of Arvida today as they apply to the care side of their operation.
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ARV/399910/380409.pdf

You keep referring to this heap of unsold units and I am trying to find confirmation on this, was it mentioned in the H1 2022 earnings call? If so I found the transcript (but it seems you have to pay to view it ). If anyone has a subscription surely fetch us the quote.
https://www.marketscreener.com/quote/stock/OCEANIA-HEALTHCARE-LIMITE-103506268/news/Transcript-Oceania-Healthcare-Limited-H1-2022-Earnings-Call-Nov-29-2021-37754177/

[Ferg]

I can no longer find the link that I listened to but I took detailed notes at the time from the conference call in May 2022.  The CFO mentioned there were 450 unsold units and suites at year end (I recorded this as "450 units n suites").  This took the analysts by surprise as being higher than expected.  "Units" refers to apartments and villas.

OCA had recently completed Awatere stage 2 which likely added 63 unsold units given it was completed right on or about year end.  There is a cooldown period criteria that must be satisfied until something counts as sold.  So finishing Awatere right on year end gives a misleading view at that point in time.

I can't recall if the actual numbers were disclosed or derived but I believe there were 150 PAC clients which means those care suites were occupied but counted as unsold given they had never had an ORA.  Note a unit only ever counts as sold when it has its first ORA.  It is also important to note that unsold does not mean unoccupied.  Such occupied suites continue to earn money which also allows for activity/buzz on a new site, and staff are not completely under-utilised.

In addition, there were possibly some clients who were not paying a PAC but who had been placed into suites after their old facilities were demolished/decommissioned etc.  Such placements count as occupied but unsold.

There was also $10m in buybacks which potentially muddied the waters - it certainly muddied the cashflow report but I am unclear as to the stock on hand impact, if any.

It was also not 100% clear if the 450 included 117* resales available for sale.  I believe it did and this is a normal part of turning over units and suites.  The CFO also mentioned there were unsold units from Bellevue & Green Gables.

*117 was made up of 38 villas, 25 apartments and 54 care suites.

All in all there is a lot of confusion given the 450 was higher than expected.  Part of the confusion arose due to the definition of "unsold" which included suites that were occupied either under a PAC arrangement or clients being placed in suites after another site was decommissioned.  As well as the inclusion of the normal stock in trade of resales.  We were hoping all would be revealed with the next report but we will just have to wait and see.  But one thing I can state with certainty is that there are NOT 450 empty care suites.
 

[winner (n)]

Oceania - the definition of "unsold" is confusing
Ryman - what really is a 'completed' unit - make up a number as you go along it seems
others - no doubt some of their numbers are 'unclear'/'confusing' as well

Underlying earnings is a made up number which to a large extent doesn't really show the 'value' of the company

NTA is essentially driven by property valuations - just a big guess in reality

Amongst the four main players in the sector maybe a dozen or so different profit measures are used to paint a bright picture. Financial reporting in this sector is very obtuse - maybe to confuse punters, maybe even themselves.

So I've come up with a new valuation method - it seems to give a realistic value, based on economic realities

For Oceania you take the NTA of $$945m and discount that by 15% because its just a big guess - that gives you $800m and then you deduct the NPV of the future 'losses' from caring and looking after people and running villages which I reckon is $100m - Gives a value of $700m - let's say $1.00 a share

My thinking is that it doesn't seem worthwhile for somebody whose not an insider to build big models to come up with indicative profits and valuations .... will always be wrong I reckon.

[Basil]

All in all there is a lot of confusion given the 450 was higher than expected.
But one thing I can state with certainty is that there are NOT 450 empty care suites.

That's not saying much.  The number I mentioned was 380 care suites.
Its the CEO and CFOs job on the call to make things crystal clear and they didn't.  (The very poor job I was referring to recently)
One thing that was crystal from the call was the significant surprise and confusion amongst analysts with numbers mentioned being asked to be confirmed again...I have never heard that level of confusion and surprise on a call before.  Why were they so surprised ?  Lack of detail in the presentation ?  Presentation focusing on all sorts of feel-good resident care and ESG stuff and lacking objectivity and anything that is a negative ?

You could fairly easily make the case that OCA's financials are deliberatly obtuse and they try and obscure things.  Notice how underlying earnings per share are never mentioned in the entire presentation and that's by no means a one-off.  Have you noted how we never hear about the point of inflection anymore ?

The downtrend continues as real estate prices and volumes continue their very severe decline.
https://www.nzherald.co.nz/business/auckland-median-house-sale-price-plunges-180000-in-10-months-barfoot-thompson/PG6O2U6G76AAZE2HOQ5YDZ7QVM/

ARV fired a very clear warning shot yesterday about the effects on its business from the care side of their operations, (28% of their business).  If people want to ignore the implications of what was said in terms of the impact on a company with 68% of its units in care, good luck to you.   

[Ferg]

Oceania - the definition of "unsold" is confusing
Ryman - what really is a 'completed' unit - make up a number as you go along it seems
others - no doubt some of their numbers are 'unclear'/'confusing' as well

Underlying earnings is a made up number which to a large extent doesn't really show the 'value' of the company

NTA is essentially driven by property valuations - just a big guess in reality

Amongst the four main players in the sector maybe a dozen or so different profit measures are used to paint a bright picture. Financial reporting in this sector is very obtuse - maybe to confuse punters, maybe even themselves.

Too right winner and I agree 100%.  The more I look at RV companies the more I am convinced the industry is shrouded in obfuscation.  That much is clear.   

In addition, any business won't include a KPI that shows under-performance or under-achievement etc. so that is not really a surprise.

My thinking is that it doesn't seem worthwhile for somebody whose not an insider to build big models to come up with indicative profits and valuations .... will always be wrong I reckon.

I'm not sure about this fascination with critiquing models we have seen a lot of lately...would you care to explain?  Any decent modeller knows their model is wrong, it's just a question of by how much.  That is financial modelling 101 which I'm sure you know.  In addition, given absolute values are easily critiqued, often ranges are presented which are based on various assumptions.  To expect any sort of "perfection" is an unrealistic expectation.  For balance: equally unrealistic expectations from modellers is looking for relationships between numbers with the unstated assumption that such a relationship should exist.  That is a fool's errand.

[winner (n)]

Jeez, the OCA020 2028 bonds are at 6.66% ....were 3.3% a year ago when issued

Hope punters who bought them back then don't need to sell in a hurry ...you'll only get $84 for each $100

[Hectorplains]

Jeez, the OCA020 2028 bonds are at 6.66% ....were 3.3% a year ago when issued

Hope punters who bought them back then don't need to sell in a hurry ...you'll only get $84 for each $100

 E hika mā!  That's a biblical interest rate right there!

[Minimoke]

New minimum pay rate for bringing care workers into the country is $29.66 an hour

[Auto Rower]

New minimum pay rate for bringing care workers into the country is $29.66 an hour

And the N T A  dropping like an Anchor 

[winner (n)]

And the N T A  dropping like an Anchor 

Looking pretty gloomy share price wise for the whole sector

The secular bear market that started about 7 years still in play ..... multiples still to drop a bit more and earnings outlook must be a bit gloomy

Surely OCA won't go to 85 cents

[Auto Rower]

Looking pretty gloomy share price wise for the whole sector

The secular bear market that started about 7 years still in play ..... multiples still to drop a bit more and earnings outlook must be a bit gloomy

Surely OCA won't go to 85 cents

I am afraid to say they will seeing as I just bought some at 88 !!!!
Its the old kiss of death I am good at that if nothing else

[BlackPeter]

Pretty sure in a couple of years you will be pretty pleased with your purchase price ; I guess, really - who cares whether hype pulls the price short term down to 85 cents, 80 cents or even lower?

30 months ago it bottomed out around 40 cents ... Didn't matter an iota to the people who bought it 6 months earlier for $1 and sold it 12 months later for $1.50 ... and didn't matter either for anybody just holding them ;

Just noise for investors and opportunities for traders ...

[Basil]

I could be tempted again at 65 cents on the greater fool theory that sometime, somewhere down the track someone will probably pay more.  Not convinced there's any value at all here at the current price.  eps is 8 cents and they will be doing well if they can maintain that this year.  With 10 year Govt stock at 4.50% now fair value on a no growth stock is a PE of 8.  eps 8 cents x 8 = 64 cents. If it doesn't get down that low I don't care, plenty of other cheap stocks around.  I am sure others will see it differently and that's fine.