OCA - Oceania Healthcare

[Shareguy]

Craig's latest report is not good reading

A OCEAN OF UNSOLD STOCK

1H24 result: a serious case of deja vu

OCA's earnings have been broadly flat over the past five years as its portfolio
has been upgraded. OCA delivered yet another flat result in 1H24, with
uEBITDA down 3%, and uNPAT down 1%, while unsold inventory and debt
continued to climb. Aged care margins fell, despite prior management
guidance for recovery. The only real surprise was that OCA cancelled its
dividend, though we have repeatedly flagged that OCA's free cashflow from
existing assets has been negative for several years (so it has been borrowing
to pay the dividend), and worsened to -$13.7m (pre-interest) during 1H24.
Dividend suspension due to poor sales performance
Unsold new stock increased $48m HoH to $422m (409 units) at the end of
1H24, driving a $61m increase in OCA's net debt to $613m (gearing 38%). The
key issue is that new sales have been slow, particularly in regional locations
(Awatere, Bay View, and Care Suites at Green Gable), with average new units
taking c.2.5 years to sell from completion, by far the slowest in the sector (vs.
<6 months for SUM). OCA's Care Suite model has worked well in leafy
Auckland suburbs, but has struggled in the regions where there is less wealth,
and there is sufficient existing supply of fully Government-subsidized aged
care beds. Management expect net debt to steady over 2H24, and potentially
decline depending on the level of settlements at The Helier and asset sales
($42m held), though they provided similar guidance six months ago.
Development model broken: course correction indicated

Aged care segment
Despite guidance for improvement in aged care earnings at OCA's last result, care uEBITDA
declined yet again, down -12% YoY to $9.9m. Even after adjusting for several site closures
and divestments, EBITDA was still down -11%, with margins down 210bps to 9.6%. We note:
Revenue growth accelerated to 7% YoY, its highest level since 1H21, from (i) a full period
contribution from the 4% Sep-22 funding increase (ii) two month contribution from the
Jul-23 funding increase of 10% and (iii) a slight mix shift towards growing premium fees.
Costs also grew 9%, largely due to Health NZ lifting wages (including 4-6% in July).

[Basil]

That's a truly damning indictment of their business model that hits the nail directly on the head.
Its good to see professional analysts now starting to call the company out on their B.S.

[Greekwatchdog]

More directors snapping some more shares. Averaging down perhaps, or a barging price?? Time will tell

https://www.nzx.com/announcements/422730

[BlackPeter]

More directors snapping some more shares. Averaging down perhaps, or a barging price?? Time will tell

https://www.nzx.com/announcements/422730

Elizabeth Coutts now holding close to 2 million shares (1,984,403 to be precise). That's a meaningful amount in most peoples books.

The other two as well both about 200,000 shares. Not as impressive as Elisabeth, but I recon they didn't pay for that out of the pity cash either.

While the fresh comittments have been lower (something like 30 to 40k shares each), it still indicates they do believe in the company, and actually - so do I.

[winner (n)]

Elizabeth Coutts now holding close to 2 million shares (1,984,403 to be precise). That's a meaningful amount in most peoples books.

The other two as well both about 200,000 shares. Not as impressive as Elisabeth, but I recon they didn't pay for that out of the pity cash either.

While the fresh comittments have been lower (something like 30 to 40k shares each), it still indicates they do believe in the company, and actually - so do I.

Liz 1,984,403 shares have cost her $2,052,832 ...average now $1.034

So she still underwater to tune of $584,000

At least keeping the faith and hoping like anything it'll turn out OK

Thought hoping wasn't a good strategy

[lorraina]

I have never thought of Liz Coutts or Greg Tomlinson as being hopers...lol

I do wonder what it would cost today to replace OCA's villages.?
Above or below NTA.?
I would take a guess at above.
Would like to know others' thoughts.

[BlackPeter]

I have never thought of Liz Coutts or Greg Tomlinson as being hopers...lol

I do wonder what it would cost today to replace OCA's villages.?
Above or below NTA.?
I would take a guess at above.
Would like to know others' thoughts.

Excellent point!

... and yes, given above average inflation for building costs its not hard to see that replacement costs would be well above NTA.

[Basil]

It's a shame you can't eat NTA

[lorraina]

Have you gone back to shopping at New World.?....lol

[BlackPeter]

It's a shame you can't eat NTA

Not really - I rarely try to or wish to eat assets (unless they are edible and I am hungry ;

I guess the thing is - if anybody needs to use the assets (for example to house elderlies), they will need to either build their own solution, buy the existing assets or rent the existing assets.

We established already that building their own solution (i.e.building another retirement village in comparable quality) is more expensive, so this either leaves using the existing solution (e.g. use OCA's services) or launch a takeover of the company (which might well be a risk given the undervalued price).

Obviously- you could as well reduce the quality of housing or care to save money (start with double bunking in a backpackers hostel down to offeeing a mattress and a blanket under the bridge), doubt however that people who are able to pay are too interested in latter solution.

None of these options involve eating NTA, so - not quite sure where you are coming from. 

[Basil]

It was a one liner one of the analysts used when talking about OCA's NTA.  What he's alluding too is that its realized earnings and more specifically operating cash flow that matter's.  That's what you pay dividends out of and that's why you're not getting any from OCA at this point in time.  All in this sector have the same problem except, perhaps, SUM.

[winner (n)]

It was a one liner one of the analysts used when talking about OCA's NTA.  What he's alluding too is that its realized earnings and more specifically operating cash flow that matter's.  That's what you pay dividends out of and that's why you're not getting any from OCA at this point in time.

Makes sense that Basil ......operating cash flow buys the Sunday roast .....NTA just a made up number eh ...and replacement cost won't be feeding you either

But OCA not got a positive operating cash flow ...not even enough for a few crumbs

[Basil]

This sector wide problem is not going to change much anytime soon either eh.
 

[winner (n)]

This announcement scored 11 out of 10 on buzzword scorer

But at least Brent is excited

Officer, Brent Pattison, said that "Tracey is a proven leader, builds great teams, implements successful change in large complex business environments and champions a winning culture. We are thrilled to welcome Tracey to the Oceania family and look forward to her contribution as we grow, nurture, and develop our people capability."

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/423035/409019.pdf

[BlackPeter]

It was a one liner one of the analysts used when talking about OCA's NTA.  What he's alluding too is that its realized earnings and more specifically operating cash flow that matter's.  That's what you pay dividends out of and that's why you're not getting any from OCA at this point in time.  All in this sector have the same problem except, perhaps, SUM.

I guess that's the thing with investments. You have to put money in (investing), wait some time, and - if you made the right choice than the money starts flowing. While you pay for your investments, your cash flow will be negative. Not rocket science.

At this stage most of the retirement villages are putting lots of money into new developments, meaning that's where the cash goes, not (yet) back to the investors.

If OCA would stop building any new villages now, they would be cash positive as soon as they wrapped up the reminder of the existing activities. If they continue to build, it will take longer, but they will get a larger cash flow afterwards, its that easy.

I understand though that patience (to wait) is neither a particular strength of traders nor of beagles so - maybe retirement villages might not be everybodys best investment proposition. Each to their own.