OCA - Oceania Healthcare

[Sideshow Bob]

All Directors etc took the DRP instead of cash ....probably Liz told them to set an example for all shareholders

Suppose many shareholders took cash ...they need to be reprimanded?

Some 68% of shares took the cash anyway ......lot higher %age if allow for the directors etc

Greg Tomlinson would have been the main one.

Owned 3.2% as of the last annual report.....probably a marginally higher percentage now.

[lorraina]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/404387/386008.pdf
And Gregg was joined by:
Elizabeth Coutts
- Alan Isaac
- Kerry Prendergast
- Sally Evans
- Peter Dufaur
- Brent Pattison
- Anna Thorburn
- Kathryn Waugh

[winner (n)]

The DRP shares our Liz got reduced her average buy price to $1.047

At current share price of 76 cents she is now $545,645 under water

At least she is sharing the pain with many eh - but she gets zillions in Directors fees to offset the pain.

But it all come right one day

[Basil]

There has been a lot of good questions regarding the level of unsold units and if demand is tapering off. 
Contacted Oceania with this question
"Now that the results are released can you tell me how many  care suites at the close of the period 30 September 2022 are  not considered contracted under a ORA agreement?"
Answer as follows
Firstly thanks for your enquiry.
As a brownfield developer of care suites, we will typically construct a new care site and then transfer residents across from the previous care centre on site, without those residents entering an ORA. There will still be other care suites available which we will sell under ORA from opening, and as the transferred residents depart we will then sell the care suite they were occupying under an ORA for the first time.
This complexity means that to date we have not disclosed the number of care suites not under ORA as it does not accurately reflect availability of stock. As we work through our pipeline of brownfield developments this will become less prevalent, however.
Feel free to contact Oceania's Investor Email address (investor@oceaniahealthcare.co.nz) for future investment related enquiries and we'll be able to get back to you.
Regards
Heath
HEATH MILNE M&A, Strategic Projects Manager
MOB +64 27 406 1798

I do feel I must call out this so-called reply from Oceania as OCA have now built a reputation as absolute masters of obfuscation.
It is notable that every other company in this sector is completely transparent with unsold units and the type of units unsold but OCA are not.  Why Not ?

Firstly, the answer is contemptuous in its nature in that it assumes investors are stupid and cannot understand the difference between a care suite being unsold under an ORA on one hand and unsold and temporarily occupied under a premium care room daily basis on the other.  Investors are generally not stupid so this condescending reply amounts to "deliberate concealment of relevant financial information"

Secondly its factually incorrect as they have disclosed this information before in the analysts call in late May 2022, (I have already posted the numbers) and additional care suites built since then and subsequent sales in the low 30's (from memory) suggests they have a very, very serious problem with unsold care suites.

Lastly, comments from management attempting to explain their poor sales in IH and especially Q2, (when I note the daily Omricon numbers had significantly abated compared to Q1) that the market simply "went to sleep" or words to that effect does not hold water as other companies in this sector such as ARV reported good sales.

I suggest the real reason you didn't get an answer is that management and directors now consider this information so commercially sensitive and care suite sales results are so poor with resulting stock level's so high they are becoming increasingly embarrassed by it. 
We don't need to explain ourselves to shareholders is their prevailing attitude

The way they cut the dividend despite telling shareholders everything is going really well and despite paying everyone lots more including staff, management and directors is again, really just saying to shareholders, we'll just keep telling you stories and hope that keeps you pacified.

Not a single word in the presentation about the 10 villages they have put on the market or why ?
Again, we don't need to explain ourselves to shareholders.
Never mentioning underlying earnings per share in their presentations.
Reason, Lets hope shareholders keep believing our story that its going to get better in the future.
There is much to be admired with the clear, open, fully transparent and easily understood way others in this sector communicate with shareholders.

[winner (n)]

Basil, don't be too hard on Brent with his 'market went to sleep' comment

He was possibly saying that the market for Oceania units went to sleep .....not the overall market per se

Another, and better, way of saying not as many as we hoped bought our units (and maybe went elsewhere?)

[Whacc]

Lastly, comments from management attempting to explain their poor sales in IH and especially Q2, (when I note the daily Omricon numbers had significantly abated compared to Q1) that the market simply "went to sleep" or words to that effect does not hold water as other companies in this sector such as ARV reported good sales.

Basil, don't be too hard on Brent with his 'market went to sleep' comment

He was possibly saying that the market for Oceania units went to sleep .....not the overall market per se

Another, and better, way of saying not as many as we hoped bought our units (and maybe went elsewhere?)

Yes it was a contemptuous non-reply, but is the "market went to sleep" statement really a contentious issue?

Yes, Omicron numbers have abated but, in case you missed it and perhaps more significantly for RV businesses, we've also had rampant inflation and the fastest, biggest hikes in the OCR in 30 years.

I mean you need to be on another planet at the moment to not realise that interest rates and availability of credit have bought the macroeconomic environment, particularly anything related to property and asset values, to an absolute stand still.  It's not news and nor is it scandalous to euphemise this situation with a statement like the "market has gone to sleep". 
It has, that's not up for debate.

I'm all for hitting management over the head for things within their control, but to make a big deal about whether the market is a hard-sell or not at the moment ain't it.  It objectively is a tough market.

Same people are quick to laud management teams when all they are doing is riding macroeconomic tail-winds (i.e. SUM getting lucky on fast-&-loose monetary policy to cash in on HPI from an overweight ILU portfolio - that's not managerial genius).

Basil lauds others in the sector for their disclosure, but his hot button issue is picking through the quality of OCA's care earnings when they are the only ones to provide segmented care earnings and the others refuse to??  Very strange.

[850man]

so any thoughts as to a takeover, surely at almost 50% discount to NTA, it must be inviting?

[Basil]

Yes it was a contemptuous non-reply, but is the "market went to sleep" statement really a contentious issue?

As Winner has suggested, I suppose they had to come up with some story.  As I said, others in the sector seem to be doing considerably better.

Yes, Omicron numbers have abated but, in case you missed it and perhaps more significantly for RV businesses, we've also had rampant inflation and the fastest, biggest hikes in the OCR in 30 years.
I mean you need to be on another planet at the moment to not realise that interest rates and availability of credit have bought the macroeconomic environment, particularly anything related to property and asset values, to an absolute stand still.  It's not news and nor is it scandalous to euphemise this situation with a statement like the "market has gone to sleep". 
It has, that's not up for debate.

"Blind Freddy" understands all these headwinds but on any decent level of objective analysis its clear others in the sector are doing a considerably better job of selling in the last half year than OCA have done.

I'm all for hitting management over the head for things within their control, but to make a big deal about whether the market is a hard-sell or not at the moment ain't it.  It objectively is a tough market.
Same people are quick to laud management teams when all they are doing is riding macroeconomic tail-winds (i.e. SUM getting lucky on fast-&-loose monetary policy to cash in on HPI from an overweight ILU portfolio - that's not managerial genius).

Basil lauds others in the sector for their disclosure, but his hot button issue is picking through the quality of OCA's care earnings when they are the only ones to provide segmented care earnings and the others refuse to??  Very strange.

Well, care is OCA's main business whereas it's just a modest part of the other companies' operations.
BTW - SUM have been making their own luck for more than 11 years now.  No company is that lucky.  They run a very tight ship and steer a very good course.

What should worry shareholders is the whole basis upon which OCA came to the market was a focus on premiumisation of their care units generating improved returns.  Since listing we've seen EBITDA in the care sector ostensibly nearly halve and promises made in the May 2022 call that things will improve have not materialized, (EBITDA margin stuck at 12% down from 21% when they listed).

The deliberate concealment around how poorly care suites are selling flies directly in the face of the whole basis upon which this company listed.  It makes me believe the whole thrust of their business endeavors is fundamentally compromised with a woeful lack of demand.  (I note ARV's care suites did not sell well either) Further, with gearing now at very high level's the rate of sales is now extremely important going forward. 

One thing, and frankly the only one I can think of in OCA's favour, is generally speaking their units seemed to be priced at the cheapest end of the market, (biggest percentage difference between average ILU unit prices and surrounding average real estate prices in the sector).  With real estate falling rapidly prospective unit purchasers might be forced to choose a boutique smaller and cheaper village with fewer facilities instead of a unit in a full feature retirement village with one of OCA's competitors that they really want.  More people may have to choose within their means whether they like it or not.  That might help OCA a bit going forward.

850man - I would rate the chances of an attempted takeover of OCA as very slim in this market.  ARV is probably a much better chance with its similar discount to NTA but predominantly ILU business model.

[winner (n)]

Only Brent really knows what he meant by the 'market going to sleep' in the latter half of H1. Good excuse for disappointing sales.

REINZ shows July/Sep sales volumes down 22% on same period in 2021 so maybe 'the market did go to sleep' in that quarter

Oct/Nov sales volumes are down 35% on last month ...jeez market having sweet dreams.

If this is any indicator of how many sales Oceania make the start to second half of year is going to be a SHOCKER

At least with Oceania it's all speculation because we only get numbers every 6 months from them but May seems a long way away.

Wonder the voting machine will have come up with by then Peter ....something in the 50's when the weighing machine is still showing 130/140

[Basil]

Only Brent really knows what he meant by the 'market going to sleep' in the latter half of H1. Good excuse for disappointing sales.

REINZ shows July/Sep sales volumes down 22% on same period in 2021 so maybe 'the market did go to sleep' in that quarter

Oct/Nov sales volumes are down 35% on last month ...jeez market having sweet dreams.

If this is any indicator of how many sales Oceania make the start to second half of year is going to be a SHOCKER

At least with Oceania it's all speculation because we only get numbers every 6 months from them but May seems a long way away.

Wonder the voting machine will have come up with by then Peter ....something in the 50's when the weighing machine is still showing 130/140

I see well respected poster "peat" in the other forum predicting 50 cents next year for OCA.
peat has always struck me as a very smart guy.   

[Waltzing]

"50 cents next year for OCA"

what to say... but stay away .....

maybe stay away from the other forum as they wont be happy holders....

[BlackPeter]

I see well respected poster "peat" in the other forum predicting 50 cents next year for OCA.
peat has always struck me as a very smart guy.   

No matter how smart he might be ... remember: Nobody can predict future stock prices (Ben Graham)! You realize that this is true for peat as well, don't you?

  ;

[Basil]

https://athenarium.com/mr-market-benjamin-graham/
In The Intelligent Investor, Benjamin Graham argues that it is "absurd" for the average investor to believe that he or she can predict prices movements better and more consistently than the market can. Average investors, after all, are by definition average. They make the market so.

Most investors are average but some who study the market very closely, place great value on thorough fundamental analysis and also carefully consider technical analysis can probably beat the market more often than not.  That's my theory and I will stick with it and might have quite a bit of evidence to support my theory 😉

Balance on the other forum just quoted one of Beagle's posts from late May 2022 when the share price was $1.04
As applicable today in terms of prospects for OCA as it was back then.  Could be worth re-reading it.  I found it useful to refresh my memory

Quote Originally Posted by Beagle View Post
I have finished my 5 years overview and a very brief synopsis is as follows.

The Float and Business Case
OCA floated on the premise that the new product called care suites would be transformational and generate far superior returns for investors.
As you can see from the presentation on page 19 http://nzx-prod-s7fsd7f98s.s3-websit...382/370976.pdf
the exact opposite of what was promised has occurred and returns on care have nearly halved from an EBITA margin of 21% to just 12%. Importantly returns were declining rapidly before Covid came along but its clear that Covid has exacerbated the issues.

Some of the reasons that explain this spectacular failure in execution of their business case as promoted at the time of the IPO appear to include:-
1. Rampant increases in the cost of human resources in the business with spectacular growth in employee costs from $103m when they listed to $156m last year an incredible 51.5% increase in staff costs.
2. A much slower increase in revenue growth from $171.8m to $231.1m over the 5 years period (34.5%).
3. Government underfunding has seriously undermined their business case and the premiumization of care hasn't worked.
4. Care suites have not met wide market acceptance and there are a total of ~ 450 unsold units inclusive of ILU units as at balance date 31 March 2022, a whole years stock. (Care suites are often initially let out as premium accommodation until they are sold, see footnote at bottom of page 31).

As a result of the spectacular failure of care suites and the systemic underfunding by the Govt of basic care (which and I am going off memory here was just on $100m in 2022 so is a huge part of their business model) underlying eps has declined from 8.60 cps in their first full year of listed operations in 2018 to 7.98 cps in 2022 and decline of 17.5% in real terms if you account for inflation.
As I have pointed out before the company has no pricing power with care suites which were only up 1-2% last year and have not kept pace with the real estate market.
Ultimately from personal experience with my Mum I believe customers are reluctant to commit to an ORA model when they don't know their longevity.

Looking forward to the next 5 years
I expect the cost of provision of care services to continue to experience rampant inflation pressures as a worldwide shortage of care and nursing staff causes huge issues with demands for more money and staff shortages. I also expect the Labour Government will play hardball with retirement village companies and continue to make them heavily subsidise care operations from other parts of their business.
This is going to cause an indefinite period during which OCA will generate very low and completely unsatisfactory returns from care.

So how long will it take OCA to execute their Pivot to independent living units so they represent more than 50% of the business model ?

Looking at page 31 and the PIE charts.
Its important to understand that currently the ratio of care to independent living units is 61:39
There are 1957 units in their development pipeline and 71% of them have already been designed and consented so it would be very difficult to change consented developments.
If they can execute at a sustained rate of 300 units per annum the pipeline will take 6.5 years to complete, a total of 11.5 years since they listed. (Please note that at the time of the listing we were told the business transformation would take 6 years)
As a result of a further 6.5 years of development they will end up with a care to independent living unit ratio of 55:45
In other words it takes a full year to move the needle one percent from care to ILU.

Conclusion
The business case upon which OCA floated has not worked. Its actually been a very poor failure in a period of strongly rising house prices, (DYOR on how much SUM grew underlying earnings in their first 5 years by way of comparison)
Care suites are not meeting wide market acceptance and OCA has no pricing power with them or basic care which combined is currently 61% of their business model.
Despite this they continue a heavy development pipeline of more care suites with most units in FY23 being care suites.

Its one thing to say you are going to pivot to independent living units but it would appear it will be 7-10 years before they have more ILU units than care, (barring major ILU village acquisitions which could somewhat speed up the process)

Seeing as this is an incredibly intense care focused business model and will be for the foreseeable future investors need to decide for themselves whether the intense cost pressures faced by those providing care services will abate anytime soon so that OCA will earn a materially better margin on its services. I think this is extremely unlikely as shortages of staff is a worldwide issue and Covid isn't going away anytime soon. Its very important to understand that even in 2028, (barring major acquisitions which might change the mix a little) OCA will still be predominantly a care based business operation.

People who believe that there is more money to be made in independent living focused business model's can execute their own pivot in less than a minute on the market, not the decade it will take OCA !

Going forward I think this will seriously underperform the others in the sector for the foreseeable future so I completed my exit from the company this week. I think the whole sector faces very serious headwinds for 2022 and potentially 2023 as well so I may remain on the sidelines for some time. In addition the Government review of this sector is very concerning and serious Government underfunding is highly likely to continue under Labour into late 2023 at least.

When the time is right I will invest the proceeds of my sell down in SUM with its well proven business model that has generated an average annual compound growth rate of 33% per annum since it listed.

I will leave you folks in peace on this thread now and conclude by wishing shareholders good luck.

I know some will hate my post and have counter points and that's fine. For the foreseeable future my time with OCA and debating it is over.
I certainly won't miss the headache's of interpreting their financial statements !
Posted by Beagle on 22 May 2022.

Sp then was $1.04.

Worth reading again in the light of OCA's recent results. Balance

Some posts age poorly, and others age very well.  I am as confident today as I was back then this post will stand the test of time.  I really need to stop wasting time on this in 2023.  I know full well without a shadow of any doubt their business case is systemically flawed compared to their competition.  What others think is not of any real concern to me and I have done more than anyone could ever reasonably expect to explain my point of view.   You either get what I have been trying to say since late May 2022 or you don't.  Its not cheap relative to ARV by any means as their business model works and is not handicapped by the grossly excessive level's of woefully inadequately financially rewarding care services that OCA has and they trade at a very similar level of discount to NTA.  More importantly ARV's underlying realised eps is growing and in real terms OCA's underlying eps is declining.   You'd need rocks in your head to choose OCA over ARV at these levels in my opinion.  I can't put it any more plainly and clearly than that!

[Waltzing]

Waikato (WAI WAKA) university business management department will allocated a research student to look into this modelling stated above once the student has completed their diversity and cultural sensitivity studies.

As this will take at least 2 months we wont have result till well into the doctorial year.

Did you come up with a similar set of statistics Winner() ?

Just tiring thinking of all the reading of OCA FA reports required....

 

[Clearasmud]

Could they not convert many care suites to independant units as they become available?
A quick and dirty calculation done;
In 2017 Oca nta 77c/sh
2022 nta =$1.34.
House price inflation 2017 to 2022 (a proxy for revaluations) was up
  46% so total  non real estate return for Oca shareholders over 5 years is 20% or 4% PA plus net dividend yield say 4%
So 8% return pa (plus any long term increase in property prices ) all assuming shares were purchased in 2017 at nta 77c.
Not that attractive unless you want property exposure.
Just realized any debt exaggerates the return
So the business return was even lower.