OCA - Oceania Healthcare

[Dolcile]

Just note that the initial investment of 500k is returned to the investor as soon as the first Ora settles. So the investment is 500k for one year, what then do you calculate roi to be?

That's a good point.  So is that what is being referred to as the "float"?  Let me think about that some more, and what value that generates.

[Poet]

That's a good point.  So is that what is being referred to as the "float"?  Let me think about that some more, and what value that generates.

Yes, I think that is what is referred to as the 'float'. That same $500 k can now be reinvested in another unit and rinse and repeat again and again.

[Ferg]

Great work there Dolcile.  With the float, this is referred to as "recycled capital" by the RV's which they use to build, per your example, a second unit.  That ORA sale also gets recycled to build a 3rd unit and so on.

A few factors to consider with your modelling:
1. DMF retained after deducting unfunded* village opex has averaged circa 65% for the past 5 years.  This has declined from FY15-FY18 figures of around 90% but it is pretty stable.
2.  *Keep in mind that a number of village opex expenses are charged to residents.  So some of these are funded, hence the high % of DMF retained noted above.
3. Development margin has averaged 30% over the past 5 years and resale gains 24%.
4. I believe resale gains are after deducting refurb costs.
5. Development loans must be repaid by incoming ORAs from the first sale and any interest costs incurred are capitalised to that loan.

I did a quick model using your figures where $250k equity is raised and $250k borrowed in Year 0, unit #1 is built in year 1 for $500k, sold in year 2 assuming 20% development margin (historical is actually higher), unit #2 was built in year 2 at $500k + 2 years inflation of 2.5% (borrow $250k again), sold for 20% margin in year 3 and so on up to 4 units.  Year 9 has the first vacancy and ORA repayment and refurbishment of #1, which is resold at a margin of 15% (historical is actually higher) in year 10, and so on for the other units.  Keep rolling this forward and you will see the snowball effect on cash and retained profits, even after deducting opex as noted above.  Plenty of FCF & retained earnings to pay dividends once development ceases.

[Dolcile]

Thanks Ferg.  That is really helpful and has given me more to think about and model.   These business are hard to value!

Interesting I was comparing the SUM and OCA annual reports and noticed that OCA has a much high proportion in the balance sheet ascribed to PPE (care) than SUM.

SUM:
PPE - $326m  (5.6%)
Investment property - $5.4b

OCA:
PPE - $712m   (roughly 30% of physically assets)
Investment property - $1.6b

[winner (n)]

Thanks Ferg.  That is really helpful and has given me more to think about and model.   These business are hard to value!

Interesting I was comparing the SUM and OCA annual reports and noticed that OCA has a much high proportion in the balance sheet ascribed to PPE (care) than SUM.

SUM:
PPE - $326m  (5.6%)
Investment property - $5.4b

OCA:
PPE - $712m   (roughly 30% of physically assets)
Investment property - $1.6b

Many Oceania care suites are classed as PPE ...rather than just Property

[Basil]

Okay here it is, the most surprising post from me all year. No its not April fools day and no, your eyes are not deceiving you, I recently took a substantial position in OCA.  Almost beggars' belief doesn't it after what I've said about the company in recent years.  All the proof you ever need that a Beagle will sniff under every single rock, even the most unlikely ones if he thinks there's a feed under there.  Unpack my thinking a bit more after Christmas.  Merry Christmas all.

[Greekwatchdog]

Okay here it is, the most surprising post from me all year. No its not April fools day and no, your eyes are not deceiving you, I recently took a substantial position in OCA.  Almost beggars' belief doesn't it after what I've said about the company in recent years.  All the proof you ever need that a Beagle will sniff under every single rock, even the most unlikely ones if he thinks there's a feed under there.  Unpack my thinking a bit more after Christmas.  Merry Christmas all.

God please help us, really give Basil some positive news at Full Year in May otherwise fang face will strike for the xxx time

[winner (n)]

God please help us, really give Basil some positive news at Full Year in May otherwise fang face will strike for the xxx time

No worries ....Basil just realised the potential of the huge float Oceania has ......which will lead to unlimited riches in the future

Good that punters aren't so blinkered one can't see the light of day ...change their views

Not many recognise that float

[Basil]

God please help us, really give Basil some positive news at Full Year in May otherwise fang face will strike for the xxx time

Has the dog gone completely loopy with excess Turners profits or is there more to this story you might wonder.

[Greekwatchdog]

Has the dog gone completely loopy with excess Turners profits or is there more to this story you might wonder.

Maybe the Dog has realised that many of us viewed long term hold (once upon time he did as well), hence different Investing Philosophies..Sooner or later they collide.

I guess you reserve the judgement to be the usual Judge, Jury Executioner if this doesn't meet your goals/timeline whatever they are...

Now be good fang face and go feed on those Flintstone Steaks..

[Basil]

Stay tuned, the dog's relentless search for new food sources and strategy to eat well will be revealed next week.

[Buzz]

Okay here it is, the most surprising post from me all year. No its not April fools day and no, your eyes are not deceiving you, I recently took a substantial position in OCA. 

OMG, I just spat out my beer! Welcome back, I also got a bit carried away and have added to my already oversized (% of portfolio) position, couldn't resist it under 70c. Look forward to hearing your reasoning in due course.

[Mos]

Stay tuned, the dog's relentless search for new food sources and strategy to eat well will be revealed next week.

Welcome back to holders club Basil - solid prospects of long term value creation at current share price. I have purchased quite a few around this level as long term investment.

I guess you're ready for the next question, can you have too many? 😆

[Basil]

Stocks and Bonds
Thanks guys but I'd better let the cat out of the bag and stop the suspense otherwise some might be cross with me given my history with these lol.  I did indeed very recently take a decent sized position in OCA...bonds not the shares    OCA 010 bought at 7.7% yield to maturity recently, last traded 7.12%.

Here's my thinking:  These bonds rank equally under a deed of security with bank debt, (not all bonds do and Synlait bonds for example are subordinated to bank debt) and the debt ratio was 37% at the half year which is not too bad and certainly wasn't the 40%+ it might have been.  There's very little risk here and a decent return with the prospect for capital gains as bond rates world-wide come down in addition to the gains already made. 

The way I see it is the bonds have very low risk as for one thing, the company has suspended dividends so is clearly focused on getting the debt ratio down and another, OCA has an ocean of unsold new stock so all they have to do is dial back their new build rate, (whether by choice or by pressure from the bank) and more than sufficient cash flow should eventuate so the repayment of these bonds is assured in late Oct 2027 at face value, (I bought at just over 80 cents on the dollar).  In the unlikely event I am wrong and insufficient sales of unsold stock occur and an interest cover ratio is breeched, and the banks make OCA do another cash issue to solve the problem, that's not my problem as a bondholder is it!

The running yield of 7.7% and the good prospect of further capital gains in the bonds is part of my strategy with my portfolio to invest some funds in lower risk area's than shares while still getting a decent return. There's not going to be huge gains here but a good pretty low risk bond play with a satisfactory running yield.  There's more than one way to skin a cat for a feed       Anyway...I'm now on a similar page to you guys hoping that sales go okay and OCA does well in the long run so that's good.  Maybe there's more money to be made from the shares, history would suggest not but its possible in the future I acknowledge that, but as a matter of principle I won't own shares not capable of paying me a decent dividend, so OCA shares are not on my radar and unlikely to be in the foreseeable future.  I'd like to think the company finally does better in the years ahead but an equity stake in OCA is not for me at this stage.  Maybe if they can prove to me they can control costs, grow underlying earnings and start paying something of a half reasonable dividend again, but until then...

[Mos]

Hard to argue with 7.7% YTM. I prefer the shares but can see your rationale.