OCA - Oceania Healthcare

[Teitei]

They should buy back in 🤭

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

That was their profit. Onwards and forwards to their next deal. In a way, they must know they did very well to get out of OCA. 

[Left Field]

Good article by Jenny Ruth on OCA's 'secret' deals and covenants with its bankers..... possibly at the expense of share holders.

https://justthebusinessjennyruth.substack.com/p/directors-shouldnt-allow-bankers

[Hectorplains]

Good article by Jenny Ruth on OCA's 'secret' deals and covenants with its bankers..... possibly at the expense of share holders.

https://justthebusinessjennyruth.substack.com/p/directors-shouldnt-allow-bankers

Agreed - Banks again guilty of "poor and too much lending."  As to  Oceania, she notes that it's taking 2.5 years to sell new apartments, "by far the slowest in the sector."  That and the obvious madness of borrowing to pay dividends...

As an aside, please consider supporting Ruth's "Just the Business"  - it's the sort of insightful and independent commentary that is sorely lacking... outside of this esteemed site! 

[Cookie]

"Scoullar has since told me that the company will be providing more details, including details of the covenants, when it announces its full-year results in February."
"But what on earth were these companies' directors thinking when they allowed bankers to have so much sway over what could be dislcosed to shareholders?"

- From the financials
"Effective 17 August 2023, the company executed a limit switch. This transferred $50m of
available commitments from the General Corporate Facility to the Development Facility."

This suggest debt repayment isn't met by cashflow, therefore a portion of the facility is switched to development facility which will allow interest cost to be capitalised. Typically when interest cost is capitalised assets will need to be sold which is expected in this case. I think they waiting for the outcome of sales during the summer months and perhaps concerned of the feedback loop to share price if asset sales did not meet expectation therefore effect potential cap raise if that eventuated. Hence the lack of disclosure regarding banking covenants.

Thats my guess.

[winner (n)]

"Scoullar has since told me that the company will be providing more details, including details of the covenants, when it announces its full-year results in February."
"But what on earth were these companies' directors thinking when they allowed bankers to have so much sway over what could be dislcosed to shareholders?"

- From the financials
"Effective 17 August 2023, the company executed a limit switch. This transferred $50m of
available commitments from the General Corporate Facility to the Development Facility."

This suggest debt repayment isn't met by cashflow, therefore a portion of the facility is switched to development facility which will allow interest cost to be capitalised. Typically when interest cost is capitalised assets will need to be sold which is expected in this case. I think they waiting for the outcome of sales during the summer months and perhaps concerned of the feedback loop to share price if asset sales did not meet expectation therefore effect potential cap raise if that eventuated. Hence the lack of disclosure regarding banking covenants.

Thats my guess.

Agree Cookie

Doing all sorts of clever things that they can manage to avoid a capital raise .......which no doubt they see as an embarrassment and a sign of failure

[Hectorplains]

"Scoullar has since told me that the company will be providing more details, including details of the covenants, when it announces its full-year results in February."
"But what on earth were these companies' directors thinking when they allowed bankers to have so much sway over what could be dislcosed to shareholders?"

- From the financials
"Effective 17 August 2023, the company executed a limit switch. This transferred $50m of
available commitments from the General Corporate Facility to the Development Facility."

This suggest debt repayment isn't met by cashflow, therefore a portion of the facility is switched to development facility which will allow interest cost to be capitalised. Typically when interest cost is capitalised assets will need to be sold which is expected in this case. I think they waiting for the outcome of sales during the summer months and perhaps concerned of the feedback loop to share price if asset sales did not meet expectation therefore effect potential cap raise if that eventuated. Hence the lack of disclosure regarding banking covenants.

Thats my guess.

Nice post - welcome to the forum.  That sounds highly probable.  It has a bit of that NZX 80's lack of transparency vibe.

[Cookie]

Agree Cookie

Doing all sorts of clever things that they can manage to avoid a capital raise .......which no doubt they see as an embarrassment and a sign of failure

Thanks Winner, I admit I am speculating here. This summer will be a very important period for sales.

[Cookie]

Nice post - welcome to the forum.  That sounds highly probable.  It has a bit of that NZX 80's lack of transparency vibe.

Thanks Hectorplains. Yeah it's abit odd regarding lack of disclosure regarding the covenants.
Lucky or not, I was still too young to invest during the 80s. I have only managed to read bits about it. Must have been interesting times.

[Basil]

Gearing at March 31 was 36.6%, up from 28.6% a year earlier, and it has kept rising mainly because, as Craigs Investment Partners analyst Stephen Ridgewell puts it, Oceania has "an ocean of unsold stock.[

/b]"

I have been warning about this for a very, very long time. Worth noting that OCA have actively tried to conceal this information from investors for quite some time. Incredibly those with myopic vision, primarily on the other channel continue to believe this is an advantage for OCA and it's only a matter of time before a huge tsunami of stock is sold. 

My contention has always been that what's in demand now and in the medium term ahead with the average baby boomer age demographics is the full feature retirement villages with all the bells and whistles.  There are good systemic reasons why SUM only take 6 months to sell down a village and OCA take years.  My contention is that not only are we vastly over supplied with care suites, where people do want this product, they still also want a full feature village so they can have fun and low feature boutique villages are going to struggle forever and a day.  I would use this analogy. Think about the demand for Citroen vehicles compared to Toyota and consider if its plausible the relative demand for these brands will change anytime soon. 

SUM are the only ones who have left the gate open to weekly fees being adjusted every year which considerably ameliorates their operational losses at a village level, unlike the other operators.  To me, they have conferred upon themselves a massive advantage going forward. 

[Hectorplains]

Lucky or not, I was still too young to invest during the 80s. I have only managed to read bits about it. Must have been interesting times.

The 80's: It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only. - Charles Dickens' The Tale of Two Cities (1859)

Is a CR still on the cards for OCA then?
 

[Basil]

It all depends how their sales go in the second half.

[BlackPeter]

/b]"

I have been warning about this for a very, very long time. Worth noting that OCA have actively tried to conceal this information from investors for quite some time. Incredibly those with myopic vision, primarily on the other channel continue to believe this is an advantage for OCA and it's only a matter of time before a huge tsunami of stock is sold. 

My contention has always been that what's in demand now and in the medium term ahead with the average baby boomer age demographics is the full feature retirement villages with all the bells and whistles.  There are good systemic reasons why SUM only take 6 months to sell down a village and OCA take years.  My contention is that not only are we vastly over supplied with care suites, where people do want this product, they still also want a full feature village so they can have fun and low feature boutique villages are going to struggle forever and a day.  I would use this analogy. Think about the demand for Citroen vehicles compared to Toyota and consider if its plausible the relative demand for these brands will change anytime soon. 

SUM are the only ones who have left the gate open to weekly fees being adjusted every year which considerably ameliorates their operational losses at a village level, unlike the other operators.  To me, they have conferred upon themselves a massive advantage going forward. 

Actually - the best car we ever had was a Citroën CX (late 1980'ies / early 1990'ies): Comfortable, reliable and economical. Basically 30 years ahead of the competition (and I still don't know any other car where you can adjust the height above ground with one simple lever while driving ...

But look - we hear what you say, and no doubt - your views on OCA represent one (of many different) valid views on the company and I see they are aligned with some other commentors and journalists. However - as always, there are many other valid views on any thing. From every perspective you see different good and bad things - and while all of these views might be right, it is impossible to predict how the future will evolve.

If I look at the analyst consensus (whatever its worth), it clearly looks like many of the analysts see something different to you. And yes, Mav has as well a different view, and while I don't think that a very detailled model based on the past guarantees a reliable prediction of the future, it is certainly one important input parameter. Mav puts a lot of work into his posts, and I think they add a lot of value to the discussion. No need for beating him up for sharing his views.

The world has so many colours and there are always good and bad things about any company and there are always shades of grey. I think its great to have a diversity of thought and viewpoints as long as everybody acts with good faith and based on facts.

If we run down people every time we think we've been right and they've been wrong, we will lose their views.

Back to OCA. Personally I clearly see issues with OCA (and one of the biggest is their pathetic shareholder communication), but I see as well a world of opportunities. It looks like an amazing deep value play, even if they would need another cash injection (which I don't see). It would not be the first share the market is re-rating. Remember the times when everybody thought its convenient to spit on SUM ... and then they rocketed upwards?

Interesting as well - if I compare OCA with the once gold standard Ryman since 2017 (ie.e. OCA's IPO, than OCA lost 12.7% of its SP since 2017 (but paid a lot of dividends), while the gold star Ryman lost in the same timeframe 37.4% of its share value (and paid less dividends than OCA).

Fact is - while its at current fashionable to bash OCA, they did do better than many other retirement villages ... and I guess with SUM - well, lets wait how their trend shows after they have been removed from the MSCI, shall we?

[Cookie]

The 80's: It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only. - Charles Dickens' The Tale of Two Cities (1859)

Is a CR still on the cards for OCA then?
 

Nice quote to describe the 80s.

I haven't done a deep dive regarding the likelihood/ how much stock needs to be sold.

Beagle has alluded to debt level has gone up. Also interest rates have gone up(although we are potentially at peak rates). So that's why I think the next few months will be important.

Thinking about it again about lack of disclosure regarding the covenant. Perhaps there is the other potential impact of knowing.
If we knew and it was perceived not to be in a good light. That could influence potential buyers behaviour to negotiate abit more knowing that OCA had to move stock.
It would not put OCA in a strong position to negotiate on sales

[Basil]

BP - Its not his first time of being too optimistic, far from it...but moving on, people will follow who they want to but food for thought, where's that got them so far ?  Just as well it's all going to be different going forward, or so the current group think on the other channel goes.

OCA appears to be a deep value play but my contention is NTA is a red herring as so much of that NTA is tied up in no and low return care and so much in "an ocean" of stock they struggle to sell.  My view is its unlikely to close that gap in a meaningful way until they can show they can shift large amounts of slow-moving stock and grow earnings.  One analyst thinks they won't pay dividends for years.  I think there's a deep systemic issue of operational losses at a village level that's incapable of resolution. so looking further out their ability to pay decent dividends is always going to be handicapped so that makes it an easy decision to apply my capital elsewhere.  (I am a dividend hound and value investor at heart and that's never going to change).

OCA should probably do okay in the 2H with sales as they have such a vast amount of stock so simple weight of numbers available for sale should, at least in theory, probably help them avoid the shockingly value destructive fiasco of a deeply discounted rights issue RYM got themselves embroiled in.

OCA is not the only company in this sector trading at a large discount to NTA, (ARV is also very close to half theoretical NTA) and the index exit event on 30 November could provide an opportunity for a deep value play on them or a good entry point for the best of breed, SUM.  ARV have a track record of modest underlying earnings growth, well, up until recently but I am not hopeful of a good print next week.  Maybe on the back of that print and index exit they will retest earlier lows of 91 cents.  If so, that would certainly command my attention.

I called out former market darling RYM in 2014 as being egregiously overpriced and have had an avoid rating on it ever since.  Their fall from grace has been quite spectacular, I agree.

I've also called out the weaknesses on OCA's model for quite some time now and its share price has halved.

My contention is there is not just a problem with OCA's shareholder communication there is a culture of concealment within that company that i've talked about before.  You'd be forgiven for concluding that the board and management treat retail shareholders with contempt.

Going forward, my view is OCA's biggest problem continues to be their very high level of exposure to care.  Sure, they have made some progress with reducing that in the last 6 months which is good, but there is a vast amount of work still to be done and wanting to change the ship's course and achieving that is analogous to trying to turn a huge ship (hopefully not the Titanic), with very small rudders...there's only so much progress you can make each year.
Sure, they will make progress each year, but capital is mobile and frankly, I'd rather be on board a better and higher performing ship, or to use another analogy I've used before, drive a car without the handbrake on.  Speaking of vehicles, many now have height adjustable air suspension...but I digress.

[winner (n)]

Wonder if what I hear that there were 5 The Helier sales counted in the F23 numbers is true?