OCA - Oceania Healthcare

[BlackPeter]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/422074/407732.pdf

I will have a look after I have fully digested the Turners result.
Initial impressions. Underlying profit down.  Cancellation of the dividend.

Just don't wait too long - this might be your last opportunity to buy OCA on the cheap , though it looks like early market is blindsided by their dividend decision (which I would fully support - well, the dividend desision, not the blindsiding of the early market);

Of course ... no cap rise.

I guess given all these Kassandra calls recently on OCA, I am wondering what these Kassandras were smoking?

They managed to dispose of 6 of their less desirable leaseholds ... though seven more to go (i.e. number grew from 10 to 13?)..

Revenue as well as profit (gross as well as net) significantly up.

Development margins up.

Unit sales (new) up to 84 in 1HY24 compared to 61 (in 1HY23). Looks like progress to me.
Unit resales up to 171 from 165 - no stellar rise, but given Kassandras saying they don't focus on resales, nice the resales not just kept but slightly improved.

Occupancy rate - slightly up,but still just 90.3%. Not amazing, but not terrible either - and yes, it takes some time to sell large chunks of new care suites.

NTA (still not a four letter word to me) up to $1.40 - and this in a time where property prices are bottoming - i.e. all up from here.

Not perfect, but I'd say they look reasonably well positioned ... now its just a question of relaxing and waiting for the coming bull run to push prices up ;

[winner (n)]

BP ...you said 'Development margins up.'

Seems they dropped from 40% in H223 to 23% in H124 .......that's a big drop eh

[BlackPeter]

BP ...you said 'Development margins up.'

Seems they dropped from 40% in H223 to 23% in H124 .......that's a big drop eh

Fair enough - one can't be careful enough in reading these announcements. There would not even have been a need to cherry pick the comparable timeframes.

The development margin for the period reflects this with a moderation from prior comparative periods of 31.7% to 21.0% in ILU product and 39.0% to 29.9% in our care suite product.
CEO Brent Pattison commented "We have achieved increased sales volumes in the period, particularly in regional locations outside of Auckland. We expect stronger development margins as we sell down our new apartment developments in urban precincts across New Zealand."

So, yes you are right and I was wrong re development margins improving in this period (even if the difference from 1HY to 1HY is not that big as the data point you choose). On the positive side ... they do expect these development margins to rise again (and I think they have a point).

Anyway - bottomline looks good enough for me, but I am sure some people will find something to criticise on it as well.

[Basil]

Of course there are always surprises but to put a number on it....
I'm Picking a Uprofit of +15% to +20%ish tomorrow.

A prominent poster on the other channel....proven to be too optimistic, yet again.

Yet again, for the 6th year in a row despite improvements in sales, albeit off an incredibly low base and with vast amounts of unsold stock, OCA cannot seem to get out of their own way and grow underlying profit.  Its always been at or about 8 cps.

NTA can grow and all that but its earnings that drives the share price and frankly I can see why the share price continues to lag in the doldrums.

In my book a no growth company with 8 cps underlying earnings is only worth a PE of 8.  I am sure we can all do the maths on 8 times 8 cents.

They can make all the noise they like about how they are transforming the business model to the point of inflection or whatever other term they like but I find myself in a position where I have heard that story so many times before, I am now so jaundiced that i will only believe it when I see it.

The faithful will of course believe, it's all going to be different going forward, just like they have for the last few years. 

Result probably not as awful as this analyst expected but I share many of the concerns he has expressed about OCA and it is also my least favored stock in the sector.  https://justthebusinessjennyruth.substack.com/p/expect-quite-awful-retirement-stock
 

[winner (n)]

This doesn't look good .......realised gains on new sales down a lot

There were heaps more new sales but less realised gains/development margin ($s)

Like H123 there were 61 sales and average gain was $207k
And.H223 there were 67 sales and average gain was $294k
Then H124 84 sales but average gain only $154k

That's a huge drop and less than what was being achieved pre-covid

No doubt the ol excuse of geographic / type mix eh ...not heavy discounting.

[BlackPeter]

This doesn't look good .......realised gains on new sales down a lot

There were heaps more new sales but less realised gains/development margin ($s)

Like H123 there were 61 sales and average gain was $207k
And.H223 there were 67 sales and average gain was $294k
Then H124 84 sales but average gain only $154k

That's a huge drop and less than what was being achieved pre-covid

No doubt the ol excuse of geographic / type mix eh ...not heavy discounting.

Nice you did the numbers, but isn't that exactly the reduced development margin you are showing? Makes sense that it was in times of dropping property prices and increasing building costs difficult to sell licenses to occupy (which are typically funded withth selling a house) with a huge margin.

Good news is - real estate market has bottomed out, and going up again, which should as well reduce the pressure on their sales margins.

[winner (n)]

Nice you did the numbers, but isn't that exactly the reduced development margin you are showing? Makes sense that it was in times of dropping property prices and increasing building costs difficult to sell licenses to occupy (which are typically funded withth selling a house) with a huge margin.

Good news is - real estate market has bottomed out, and going up again, which should as well reduce the pressure on their sales margins.

Exactly ....but then why were margins nearly 40% in six months to March when all those factors you talk about were in play .....and this period 23%

[BlackPeter]

Exactly ....but then why were margins nearly 40% in six months to March when all those factors you talk about were in play .....and this period 23%

Taking your numbers at facevalue - but the margins for H223 (if true) look really outstanding. Not sure though, how statistically relevant the 60 odd sales for that half year have been.

However - for this last HY (April to September), they clearly had the full impact of the high building cost inflation as well as buyers reluctant to flog off their house in the middle of a real estate downturn. Real estate bottom was something like July / August, wasn't it?

[winner (n)]

You've got love these dinky charts they put in the preso ....really coolYou cannot view this attachment.

[Basil]

Taking your numbers at facevalue - but the margins for H223 (if true) look really outstanding. Not sure though, how statistically relevant the 60 odd sales for that half year have been.

However - for this last HY (April to September), they clearly had the full impact of the high building cost inflation as well as buyers reluctant to flog off their house in the middle of a real estate downturn. Real estate bottom was something like July / August, wasn't it?

Had a call from a client with more than 40 years' experience in the industry today and still one of Auckland leading Auctioneers.  Don't believe all the hype around the market bottoming out he warned.  It's still incredibly hard work selling property which has very rarely been less affordable because of interest rates where they are.  Interesting feedback from the coalface of a very experienced operator.  I still think it's going to be a real "grind" for the sector in the near future, so not a sector I want to apply fresh capital too at this point in time even to SUM which far and away have the most compelling and well proven earnings growth story over the last decade.    At an operational level OCA's villages lose big money, another serious reservation I have about this one.

[Mos]

Another sideways result. Must be very few sales achieved at The Helier given low level of new sales margin. Certainly tests the patience. If they don't deliver stellar H2 new sales driven by The Helier it really calls into question their ability to execute. You would think Greg T may lose patience with Management if H2 does not deliver a significant step up.

[Greekwatchdog]

For Bars Review.

Oceania Healthcare (OCA) delivered a weak, yet somewhat reassuring 1H24 result. The weakness was undramatic and primarily related to increased village opex, driven by two village openings and slightly higher corporate overheads versus our expectations. Our main takeaway is the reduced risk of a downside scenario for the sector in general, with three reasons in particular for OCA. (1) OCA delivered all time high ORA sales of ~NZ$129m, +NZ$10m above its previous record in 1H21. Up +90% sequentially from the very weak 2H23 and up +15% on 1H23. (2) OCA sold two care sites at or marginally ahead of book value, these are non-premium assets that are broadly breakeven. This suggest some support for OCA's (and the sector's) book value at NZ$1.40 per share. (3) While leverage crept up another +120bps to 37.4%, the pace of debt accumulation has slowed materially. Assuming current market conditions remain, management suggested that debt should not move materially from here to year end and start to track lower thereafter. We reiterate our OUTPERFORM rating with a NZ$1.00 target price.


What's changed?
Earnings: Annuity EBITDA -8%/-9%/-7% in FY24/FY25/FY26 primarily driven by higher costs
Target price: NZ$1.00 from NZ$1.05, due to lower annuity EBITDA and reduced dividends.
Peak debt take two
OCA suggested at its FY23 result in May that it was at or close to peak debt; that did not turn out to be the case. OCA added ~+NZ$60m of net debt in 1H24, primarily due to a combination of: (1) a delayed start to sales at the flagship development The Helier; (2) a few opportunistic land acquisitions; and (3) delayed settlements of sales, primarily a number of care suites. Management again suggested that debt would plateau at its current level before trending down thereafter, but cautioned that it was dependent on housing market conditions. We believe management is being prudent. A combination of: (1) a well advanced sales process at at least two sites, (2) lower capex, (3) higher sales, and (4) no dividend, creates a back drop where maintained or reduced net debt is likely. We see ability to reduce net debt as both a necessary and sufficient condition for a re-rating of OCA's shares.


OCA has a relatively straight forward path to debt free (or near to) if it so chooses
We estimate that OCA needs to spend a further ~+NZ$140m of capex to finish the current 382 units it has under construction. Most, if not all, could be completed by the end of FY25. We estimate the cash sale price of the 382 units to be in the vicinity of ~NZ$240m, which together with currently available-for-sale stock (NZ$365m), and assets sales (NZ$40m), should reduce debt to ~NZ$100m. Against this OCA would still have ~NZ$180m of development assets.


1H24 result summary & forecast changes


OCA's 1H24 result was below our expectations at the annuity EBITDA and underlying earnings lines, primarily driven by higher than expected opex. With costs higher than our estimates across both its village and care operations. Pleasingly, care DMF (deferred management fee) was in-line after disappointing at its 2H23 result, while village DMF was slightly weaker due to the sale/closure of sites within the period. 1H24 sales rebounded from a weak 1H23, new sales gains (due to margins) were below expectations while resales gains were ahead of expectations. OCA did not declare an interim dividend and will consider a final dividend depending on cash flow, market condition and growth opportunities at year end.

[winner (n)]

Thanks shareguy for sharing that from Forbar

A 'very reassuring' report indeed ....though cynically you sometimes wonder how results/performance is viewed by the colour of the glasses one us wearing.

Wonder if result is 'uglier' than what the guy from Jarden was expecting?

[lorraina]

Macquarie have OCA as outperform with a target price of $1.31.

[Crackity]

Macquarie have OCA as outperform with a target price of $1.31.

They should buy back in 🤭

Their final 41% holding went at $1.20 ( a nice 301 mill for Maccas coffers )