(STRICT) OCA - Oceania Healthcare

[winner (n)]

Bolly bonds tightening .... they say a good sign for a break out upwards

[kasper]

Bolly bonds tightening .... they say a good sign for a break out upwards

Your going to talk yourself into buying soon before you miss the upcoming run up.

[winner (n)]

Shareclarity has a DCF valuation of $1.19

That can't be right .....Must have forgotten about the ever increasing DMFs or something

But then many would be happy if share price was actually $1.19

[kasper]

Shareclarity has a DCF valuation of $1.19

That can't be right .....Must have forgotten about the ever increasing DMFs or something

But then many would be happy if share price was actually $1.19

Shareclarity are rubbish. Lol

[Basil]

Shareclarity has a DCF valuation of $1.19

That can't be right .....Must have forgotten about the ever increasing DMFs or something

But then many would be happy if share price was actually $1.19

I'm not a huge fan of share clarity but I was quite surprised to review some of their valuations today and some of them make a heck of a lot of common sense.
For example GNE @ $3.12 and ARG @ $1.45 make a lot of common sense to me as does OCA at $1.19
Like all DCF valuation models it all depends upon the inputs and assumptions they enter into their system but in these three cases I actually think they've done a very good job.

[Shareguy]

Here are some other valuations from Brokers most recent research notes.

Forbar  $1.55 Outperform 
Craig's $1.21 Neutral
Jarden  $1.25 Neutral

[kasper]

I'm not a huge fan of share clarity but I was quite surprised to review some of their valuations today and some of them make a heck of a lot of common sense.
For example GNE @ $3.12 and ARG @ $1.45 make a lot of common sense to me as does OCA at $1.19
Like all DCF valuation models it all depends upon the inputs and assumptions they enter into their system but in these three cases I actually think they've done a very good job.

Well yes I must also agree with their $8.72 value on SUM and $7.18 on A2.

[kasper]

Here are some other valuations from Brokers most recent research notes.

Forbar  $1.55 Outperform 
Craig's $1.21 Neutral
Jarden  $1.25 Neutral

And 4 traders avg target price equals $1.49 so let's just say $1.40 to be conservative and be done with it.

[winner (n)]

this from a recent OCA preso

I assume this affordability ratio is the 'discount' of a Oceania unit to the overall property market ......yes?You cannot view this attachment.

[Basil]

I read it is ILU's are ~ 59% of the surrounding property price, (41% discount to prevailing property prices) and care suites are only 27% of surrounding property prices, (73% discount).

OCA score an "own goal" with their care suites by offering cheap premium rooms.  https://images.oceaniahealthcare.co.nz/wp-content/uploads/2020/11/09181641/Oceania-Premium-Accommodation-Charges-Final.pdf

[winner (n)]

I read it is ILU's are ~ 59% of the surrounding property price, (41% discount to prevailing property prices) and care suites are only 27% of surrounding property prices, (73% discount).

OCA score an "own goal" with their care suites by offering cheap premium rooms.  https://images.oceaniahealthcare.co.nz/wp-content/uploads/2020/11/09181641/Oceania-Premium-Accommodation-Charges-Final.pdf

Thanks.

the way analysts talk the gap (say your 41% mentioned above) provides a buffer when house prices fall so investors should not be too worried about a property down turn. Even Oceania management talk about this buffer

Seems the logic is that they can use this buffer to increase their prices

So if property prices decline by say 10% but Oceania put their prices up say 5% then the discount becomes 31% (not the 41%)

Overall impact is that Oceania will get 16% more for the sales than if they had followed the market down ....


.....this buffer is a cool thing, or don't I just get it

[Whacc]

OCA score an "own goal" with their care suites by offering cheap premium rooms.  https://images.oceaniahealthcare.co.nz/wp-content/uploads/2020/11/09181641/Oceania-Premium-Accommodation-Charges-Final.pdf

My understanding is that you can't just walk in and ask for a PAC over any suite, if they are willing to offer a PAC room at a facility (they may not be willing to offer any at a given facility) then it will likely be an undesirable room (usually a smaller room with no view) and only on a short term basis for respite or palliative care.

If you're coming in as a prospective resident expecting to stay for, say, a 3 year tenure then they won't agree to a PAC.

[Basil]

The buffer only works if there's demand to make it work and residents want into the villages concerned.  I also think to a large extent the buffer is overstated in its effect.   More people than many realise simply make the decision to buy a unit and use existing resources and get on with selling their house after they've moved into their new unit.

I think its common knowledge that OCA have not been increasing their care suite prices in recent years, (despite a booming real estate market) because the demand simply isn't there to support price increases.  Demand appears to have been dramatically undermined by Ryman's far superior fully refundable deposit scheme.    I don't think any OCA shareholder wants to acknowledge that.  Head in the sand ?

On the other hand by way of contrast its been reported SUM increased their ILU prices 3 times last year against a backdrop of very strong demand.
Craigs in recent research believe despite the 3 price increases last year SUM's units are the cheapest relative to the market they have been in many years.

The other problem with the care suite model is the demand isn't there until by need it is.  It might for example take 2 years or even more for them to fill up the 113 new care suites being completed this half at Lady Allum in Milford Auckland whereas by way of contrast RYM and SUM are preselling the bulk of their new villages before they're even completed.    There are clear cash flow advantages between the two different business models which explains why OCA have a relatively high debt level and SUM's gearing is the lowest in the sector.

[Ferg]

Basil, you say:

Demand appears to have been dramatically undermined by Ryman's far superior fully refundable deposit scheme.

Per here:
https://www.rymanhealthcare.co.nz/what-we-offer/peace-of-mind-guarantees
Ryman seems to offer a number of guarantees.  The only thing I could find that differed to here:
https://www.oceaniahealthcare.co.nz/living-at-oceania/village-living
was the 90 day deposit refund.

Is that what you are referring to when you talk about the "fully refundable deposit scheme"?  Is that enough of a difference to dramatically undermine OCA ILU sales?

Also, I'm not sure we should be comparing sales rates of OCA care suites to sales rates of RYM or SUM ILUs.  They have different target markets, differing levels of service and different price brackets.  Would it not be better to compare sales rates of OCA ILUs to sales rates of RYM/SUM ILUs?  OCA apartments are often pre-sold, much like the other RV providers.

It is well known care suites take a relatively longer time to sell down given they are more needs based plus there is the issue of over-reporting unsold suites as previously discussed, which differs to unoccupied suites.  Lastly, OCA do not help themselves by comparing the care suite price to houses in the surrounding suburb - that is similar to comparing an apple to an orange and carries little no weight IMO.

[Whacc]

I'm not fully across how RYM operates these deposits.

• Are they genuinely available on any room in their care portfolio?  Has anyone tested this?
• How are they accounting for them?  Presumably if the next resident has the choice of a daily rate then they are always a current liability? Big unknown capital management risk for RYM - what if you had a whole bunch of deposit residents leave only to be replaced by daily rate payers?  You'd need to pay all the deposits back with nothing coming in.

Seems like a strange, not particularly capital efficient decision to make when the market has tested and accepted DMF on care.