OCA - Oceania Healthcare

[winner (n)]

 
[/quote] =msg=3938 date=1667682841]
Ahhhh.... If only the company capitalization was related to forum emotion... boom times
[/quote]

There is ....but a negative relationship         

PEB and Plexure/Task are other great examples

[Onemootpoint]

Hit a new 1 year low....78c.

[Plata]

Indeed. I sold out recently from all my RV stocks. Just don't see the light at the end of the tunnel with house prices falling and now the large pay increase to the already better paid Australian nurses/carers. From memory more than half of our carers/nurses are foreign migrants, I imagine their loyalty can be bought quite easily and therefore will put further pressure on NZ employers to raise wages.

[Basil]

OCA not as bad as My Food Bag - they down 25% in same period

Humor me mate.  There could be something to be learned here comparing train wrecks, a free lesson.  Which has the less ugly medium-term prospects going forward?

MFB down 60% since September 2021 and OCA now halved since I started selling in the same month.  Absolutely massive destruction in value in less than 14 months on both counts.  Interesting question though, which disaster is potentially the more salvageable situation in the medium term if one was to now have a speculative punt?

Quick look on direct broking shows a 12% yield for MFB but that's not all, its fully imputed !...so 16.7% gross.  Okay, probably not sustainable while we're going through a cost-of-living crisis but on a look through the pending recession / cost of living crisis maybe it's almost worth a punt for yield?  Maybe consumers won't always be in a cost-of-living crisis and will start ordering again in a big way at some stage?  Could be a dark horse and get up for a place at long odds, you never know ?

On the other hand, I think it's clear there's no letup in the rapidly escalating costs of providing care and with real estate tanking this just looks like a hole that gets deeper and darker every year going forward.  The way I see it care is like a horse mired in quicksand...there's no escaping it and if you have too much of it in the business model it drags everything down into the mire.  No way that changes any year soon which makes OCA a horse punters should avoid as its almost certain to run donkey last in the retirement sector race which as I see it is really just a race to see who does the "least worst" of the sector in the next two years.  Kind of like a backwards horse race.  The horse that goes backward the least is the winner...but why punt at all in that race on any horse in it ?

Finally, comparing this to another train wreck Harmoney, (why not compare 3 wrecks just for fun) see my comments in the first 6 pages in the other place, but post 39 sums it up from February 2021 when the share price was ~ $A2.50 "Lending money to people unsecured is a recipe for disaster regardless of the interest rate charged. I think their business model is fundamentally flawed so wouldn't be an investor at any price".  That's another train headed even deeper into trouble burning up money like there's no tomorrow.  Very soft and muddy track they're on there with rapidly rising consumer delinquency during the cost of living crisis.
They way they're burning through capital it could be off to the glue factory with that nag sometime in the next year or two.  Best hope is a massive transfusion of new capital at some deeply discounted price and hope to nurse that nag through the next year or two. 

I reckon there's always a lesson from watching each train wreck and another lesson again when you compare them.  Nardia has the X factor, what have the others really got ?  Pretty sure the next episode of Nardia's farm is on tonight.  P.S. Looking at the chart of MFB it looks like its threatening to break up through the 30 day moving average line.  Have we just stumbled upon a donkey worth punting on ?

[Shareguy]

Could quite easily overshoot on the downside below my assessed fair value of 64 cents but I think another visit below 40 cents is very unlikely.
Sorry, I can't help my obsession with slow motion train wrecks...

I thought at the time that 64c was unlikely. Looks feasible now though.

[Minimoke]

My 20% stop loss hit so I'm out at $0.80

[Basil]

I thought at the time that 64c was unlikely. Looks feasible now though.

Highly likely to overshoot on the downside.  Go into any care facility anywhere and you'll see the majority of workers are immigrants.  When my Dad was at Ryman with Dementia the entire facility was staffed with Filipino workers.  Many care facilities are closing because they're losing a lot of money or simply cannot get the staff they need.  Its hard to imagine that we're not headed for a real late stage care crisis of epic proportions in N.Z.

https://www.abc.net.au/news/2022-11-09/is-15-per-cent-pay-rise-for-aged-care-workers-enough/101631292
With significantly higher wages in Australia, a more open entry system, a 15% increase just announced and hopes of another 15% next year its beats me why any caregiver would choose to come here instead of Australia ?  The only option seems to be for retirement villages to increase wages a lot more despite the Govt's pathetic funding rate adjustment at less even than the rate of inflation) and cross subsidise the cost of the care with profits from the independent living unit sales.

That's not going to be massively impactful for those companies in this sector that only have a small portion of their business as care, such as SUM and ARV but it will really hurt RYM in my opinion, and is shaping up to really undermine the viability of OCA going forward.  The market is a forward looking beast and I think its really starting to wonder about whether the rising care costs might not just soak up ostensibly all future DMF gains like it has for years now, but whether the chronic seriousness of underfunding of care starts to send earnings into decline not just in inflation adjusted terms like they have already fallen 17% over recent years, but in absolute nominal eps terms as well.  Its clear this Government are more than content to sheet the underfunding problem home to the shareholders of retirement village companies and let the hopelessly overrun health system deal with the overflow of old aged folks from smaller facilities that have had to close. 

I think the hardest thing for some investors to get their head around is they keep thinking it must be cheap because of the theoretical discount to NTA last reported as $1.32.  The thing is if the vast majority of those assets are earning pitiful returns then NTA becomes an entirely inappropriate yardstick.

Who would want to take over a company like this with deep systemic issues that appear baked in and unresolvable?

64 cents assumed a no growth eps of 8 cps and a commensurate no growth PE of 8.  If earnings are going to go into decline (and I think there's a real chance they might), then quite aside from the common occurrence of shares in a steep decline falling below fair value its clear fair value needs to be questioned as well.

Others seem to think that the increasing DMF revenue will be the panacea for all ills the company.  I remain deeply skeptical.  (Occupational hazard of bean counters is they need to see the evidence before believing it)  There's now a half decade track record of extra costs soaking up all the DMF gains and it appears costs are now growing at an even faster rate so the odds on this well-established pattern of no growth changing any year soon look increasingly remote.  Indeed, one would be foolish not to consider the possibility of earnings per share going into decline this year.  If costs are going up at a rate north of 10%, as I suspect they are, and Government funding is only covering half that increase quite clearly the situation is getting worse every year.

What does one look for as a sign that there is something here to pique one's interest ?  Well apart from a further significant fall in the share price AND clear chart evidence the share price is likely to have bottomed out, (not expected that anytime soon),  I think a Mea Cupla admission that returns on care are simply not acceptable and a major change of strategy aimed at reducing the considerable stockpile of unsold care suites would be a good start.  For example, if on 23 November they said something like, look, all future village development plans and unsold stock units are under review with renewed focus on how we can shift more quickly towards more independent living units...that might be a start in a VERY long journey...
What's to stop them having for example, two thirds of their new apartments at the Milford village as ILU's rather than the whole 113 (from memory) new units supposedly delivered last half as care suites ?  I reckon the directors need to start thinking outside the box and do something serious about improving future returns rather than endlessly waxing lyrical about their ESG initiatives.   I doubt anything will change and I am of the opinion it is likely that underlying earnings per share in real inflation adjusted terms decline this year.  The sell down of the Helier in FY24 should temporarily arrest the eps decline but where to from there in FY25 is quite frankly anyone's guess but its hard to imagine the real estate decline and ever increasing cost problem are issues that will be resolved in the near term.     Maybe 2024 sees the bottom of the real estate market so that stops that problem for OCA in FY25 but I honestly have no idea how they are going to solve their ever-worsening problem with care costs.

[Shareguy]

Great post Basil.

What a disappointment this company's share price has been. We don't have long to wait to find out just how things are.

There has been no disclosures made, so is this just sentiment or are their cockroaches waiting to show themselves.

I am constantly hearing reports in the media of "doom and gloom" in the property market. In my opinion they are exaggerated, factless and without merit. Yes they are declining but after such a ridiculous gain last year are we  surprised.

Figures from QV show the average house price in NZ went up 28.2 percent in 2021.  Til the end of October 2022 QV says that the average is down 9.7 percent lower than at the start of this calander year.

https://www.qv.co.nz/news/qv-house-price-index-october-2022-double-digit-declines-growing-2022-ticks-away/#:~:text=for%20the%20quarter.-,The%20latest%20QV%20House%20Price%20Index%20shows%20the%20average%20home,average%20decline%20nationally%20of%209.7%25.

As Basil points out the care side of the business is a real concern.  How bad things are will hopefully soon be revelled.

Half year is on the 23 of this month. Will wait till the results are announced before I decide next move. The truck is semi full. In the meantime I am strengthening the chassis's in readiness to back the truck up.

[Basil]

It is cheap though Shareguy ?  I look at this is a property company as that's where the real coin is.
I think its relevant to compare to not only other retirement village companies but also to other classes of property, i.e. other property companies and I can't help myself compare it to KPG seeing as they have exactly the same last reported NTA of $1.32.

Few weeks ago I added some KPG at 86 cents, (both KPG and OCA were very close in price at the time) and made the case in that thread that for 33% taxpayers I'm getting ~ 10% gross yield AND a decent discount to NTA.  (KPG is a P.I.E. so quarterly dividends are fully tax paid in investors hands).

By comparison at the time OCA offered a ~ 5% yield and the same level of discount to NTA.  Sure OCA retain more of their earnings but where's that got them so far ?  Interestingly I note OCA would need to get down to 44 cents to offer the same yield as KPG.   Hmmm

Obviously these are two different asset classes within the property sector and two very different business models but the real standout key difference I see between the two is KPG is free to run their business as they see fit with minimal Govt interference such that ALL their assets are in a position to earn a proper commercial return.  On the other hand OCA has more than half their assets employed within the care sector and the Government have basically thrown all those assets under the bus.  https://www.newshub.co.nz/home/politics/2022/11/jacinda-ardern-grant-robertson-react-to-pictures-of-them-in-80s-as-aged-sector-calls-for-more-funding.html

REINZ figures for October will be out in the next few days and will be interesting. 

[BlackPeter]

Indeed. I sold out recently from all my RV stocks. Just don't see the light at the end of the tunnel with house prices falling and now the large pay increase to the already better paid Australian nurses/carers. From memory more than half of our carers/nurses are foreign migrants, I imagine their loyalty can be bought quite easily and therefore will put further pressure on NZ employers to raise wages.

While selling low is a safe recipe to turn a large fortune into a small one ... hey - its just money, isn't it? Do you expect the retirement sector to go bankrupt or do you want more powder to pick the bottom?

Anyway - good luck with your other investments.

Just wondering, where do you expect retirement stock to sit in 5 or 10 years from now when no doubt all the retired people are gone and nobody needs them anymore ;p ;

[Plata]

While selling low is a safe recipe to turn a large fortune into a small one ... hey - its just money, isn't it? Do you expect the retirement sector to go bankrupt or do you want more powder to pick the bottom?

Anyway - good luck with your other investments.

Just wondering, where do you expect retirement stock to sit in 5 or 10 years from now when no doubt all the retired people are gone and nobody needs them anymore ;p ;

I don't think it will go bankrupt or anything like that, I just think the headwinds it faces in next few years (namely house price falls and care staff shortages) will mean there is not much opportunity to be had here at the moment. I also don't think the price I sold out at will be the bottom, not that I intend to buy back in. Staff shortages are already starting to close facilities, and I don't see that problem getting better in the next 2 years especially with the generous pay rises to be had in Australia. I was hopeful that the increased build rate and the commissioning of the Hellier would lead to a pretty decent result, but I am not willing to take the risk anymore that OCA can keep costs down especially in the current environment.

I'm sure the RV sector will be up in 5 or 10 years time, but I don't consider my understanding of the sector or its constituents to be greater than the average market participant, and on that basis don't feel it is worth the time effort or risk to hold them vs having the money in an ETF or something I better understand. I am also highly suspicious of RV stocks being labelled a bargain right now, given what appears to be quite low interest from institutions. Do retail investors outperform institutions?

[winner (n)]

I see Salt's Long Short Fund has Ryman as their largest SHORTS and SUM as one of their largest LONGs

Methinks they just having a bob each way

[Basil]

I see Salt's Long Short Fund has Ryman as their largest SHORTS and SUM as one of their largest LONGs

Methinks they just having a bob each way

Looking at their respective growth rates in recent years and comparative premiums to NTA I would say that's a superb execution of a sound long-short strategy.   It beautifully hedges out the market risk, sector risk, shorts the higher care business model, (which is where the real pressure is and likely to remain so indefinitely), against the lower care one, shorts the high premium to NTA against the lower premium and shorts the lower growth against the higher growth company.  This is long-short stuff at its best.  The only better strategy I could think of is short OCA and long SUM.

[Whacc]

I see Salt's Long Short Fund has Ryman as their largest SHORTS and SUM as one of their largest LONGs

Methinks they just having a bob each way

Haha, pretty sure that's been the case for the last 5 years if you look back.

[BlackPeter]

I don't think it will go bankrupt or anything like that, I just think the headwinds it faces in next few years (namely house price falls and care staff shortages) will mean there is not much opportunity to be had here at the moment. I also don't think the price I sold out at will be the bottom, not that I intend to buy back in. Staff shortages are already starting to close facilities, and I don't see that problem getting better in the next 2 years especially with the generous pay rises to be had in Australia. I was hopeful that the increased build rate and the commissioning of the Hellier would lead to a pretty decent result, but I am not willing to take the risk anymore that OCA can keep costs down especially in the current environment.

I'm sure the RV sector will be up in 5 or 10 years time, but I don't consider my understanding of the sector or its constituents to be greater than the average market participant, and on that basis don't feel it is worth the time effort or risk to hold them vs having the money in an ETF or something I better understand. I am also highly suspicious of RV stocks being labelled a bargain right now, given what appears to be quite low interest from institutions. Do retail investors outperform institutions?

Fair enough - I am sure there will be plenty of other opportunities to make money over the coming years. Having said that, I am long in both OCA as well as RYM.

Admittedly - I am not interested whether my holdings correlate with any institutions. The thing is, institutions are not better in predicting the future than anybody else.

I remember when CBI Insurance went broke, it had a number of institutional investors (ACC and Jarden are just two of them).

I remember plenty of funds (incl Fisher Funds, but it was a mass hysteria) buying into XRO when the SP was much higher than now.

I remember the infallible Infratil investing millions into a number of European Airports, which they afterwards sold for one dollar (or was it one Euro or Pound)?

Institutions get it sometimes right and sometimes wrong. As anybody else, they are fallible and not able to predict the future.

Better DYOR.