OCA - Oceania Healthcare

[Teitei]

Teitei - always good buying at 59 eh

Upside looks better than downside at 59c?

Must admit that the lack of conviction follow through buying is surprising. 30m+ index selldown is huge!

Hence, my musings on the step change upwards in interest rates on their increasing debts and why Brent is leaving if things are all heading in the right direction.

We are but little minnows in the overall scheme of things when it comes to having any impact on the sp of a liquid stock like OCA - so good to surface issues for all to comment on.

[winner (n)]

One of those extended trading days today ......OCA went to 84 cents on high volumes on one of those days a while ago for no apparent reason

[Whacc]

This is just one of those stocks where management/company fortunes always seem to be bad. Started off making the wrong play into care instead of independent units, the latter turned out more profitable. Then tried correcting by building heaps of premium care suites and independent units, which now appear to have been hard to sell for the last 2 years or more. Would not surprise me at all if it just plods along doing nothing until it gets taken over at the sub $1 mark. I think the recent takeover proposal for ARV is probably a reasonable example for OCA too, a board so certain of intrinsic value they will turn down pretty reasonable offers. I have not looked at this sector for a while but my gut feeling is ARV is a better buy, at least then you have some confidence the share is actually undervalued given they got offered $1.70 a share mere months ago.

There has to be some sort of lesson with this one, how things can go so wrong for so long despite extremely obvious and forecastable growth in the total addressable market for its products.

There is so much hindsight bias in this post it's hard to know where to start.

Independent units only went gangbusters because the property market went absolutely bananas between c.2016-2021 fueled by loose monetary policy.
No one could have forecast that, anyone who says that was in any way predictable is a fool.
In the words of Paul Conway (Reserve Bank of NZ Chief Economist) yesterday "forecasting asset prices is a mug's game".

Patting Summerset for getting lucky with an overweight ILU portfolio during a house price boom ain't it. 
Especially because they were actively trying to reweight to a more balanced portfolio with care at the same time.

You say:

... how things can go so wrong for so long despite extremely obvious and forecastable growth in the total addressable market for its products...

If anything it's 100% more obvious and forecastable that there is going to be an overwhelming demand for care in the next 5-10 years as the largest generation this country has ever seen (Baby Boomers) age and have increased acuity requirements.
Care, unlike independent units, is a non-discretionary service that most people will need at some point in their lives.
It's patently obvious this need will be required and where - we can see it in Statistics NZ data how many people of a certain age there are in NZ and precisely where they live.

That's obvious and forecastable - are you going to turn around in 5-10 years and berate anyone who missed that wave?

[Untamed]

At last! Someone else who gets it.

If anything it's 100% more obvious and forecastable that there is going to be an overwhelming demand for care in the next 5-10 years as the largest generation this country has ever seen (Baby Boomers) age and have increased acuity requirements.
Care, unlike independent units, is a non-discretionary service that most people will need at some point in their lives.
It's patently obvious this need will be required and where - we can see it in Statistics NZ data how many people of a certain age there are in NZ and precisely where they live.

That's obvious and forecastable - are you going to turn around in 5-10 years and berate anyone who missed that wave?

[Plata]

My interpretation of the results by segment suggests that without development gains and valuation uplift gains the village segment only makes a small profit. Do you think this is just reflective of operational inefficiencies from the unsold stock? Is it the case that most unsold stock are independent units?

[Basil]

The beginning of the boomer generation is widely regarded as 1946 which makes them 78 now and some already need care. Keep in mind though the peak wasn't until 1961 when more babies were born in N.Z. than any other year before, or indeed, since then. Those people are only turning 63 this year and may not need care for another 20 years. On the other hand OCA has an ocean of unsold care suites it can't sell now that's blowing out their debt levels and debt funding costs now.

Oceania are ahead of the demand curve, yes agreed. Uncomfortably too far ahead of it and that is what's hurting their financial performance now. Hopefully the new CEO can realize this and steer a different course to avoid any icebergs.

[Untamed]

It is not just about boomers. It is also to do with life expectancy in general. Our elderly folk are living longer than ever before. Some of them are able to stay in their homes, with support, until they reach their nineties. But many are not, so require residential care of some kind. Some folk find it incredibly isolating and lonely, continuing to live at home, even with good family support. Once they can no longer drive, they lose so much independence and their lives change dramatically. Many of those people choose residential care, for social reasons above everything else.

The need for quality care options will continue, and the level of care required will increase. If elderly people are staying in their home longer, they may not come into care until they are in their 90s. At which point their physical needs are likely to be higher than they would be if they entered care in their 80s. Care suites are literally the ideal option for care, for those who can pay for it. It provides continuity of care, peace of mind, and a guarantee of quality/flexible care, until the person dies (excluding severe dementia which can usually not be provided under this model). As someone who works in the field, and has experience with care, if I had the financial means, a care suite is what I would choose for myself. It is a far superior option than standard rest home care (private or NGO), and in my humble opinion, is as close to "perfect" as one could get.

In addition, there is always going to be a need for standard, government subsidised care, for people who cannot pay for care. OCA has said in the past that they will always maintain some level of these beds, so I hope that promise stands. As a shareholder, I will be extremely disappointed if that changes. Sometimes as a business, you do something for the right reasons, not just for money. There has to be a human side to these businesses, alongside the profit making side. I am not interested in investing in any RV that turns away from that.

[Basil]

My interpretation of the results by segment suggests that without development gains and valuation uplift gains the village segment only makes a small profit. Do you think this is just reflective of operational inefficiencies from the unsold stock? Is it the case that most unsold stock are independent units?

No, I have written extensively about this issue before.  The root issue the new CEO needs to address is the huge number of unsold care suites, more than 4 years of unsold stock at their most recent care suite sales run rate.  The other key issue is the older care villages they can't sell that are either loss making or so close to breakeven they're not giving shareholders any return on capital invested.   If they can't be sold maybe the villages should be closed, tarted up a bit and sold as cheap independent living units or emergency accommodation units for WINZ.

When you are in a hole, stop digging.  The first thing they need to do is stop building more care suites or dramatically dial down the number of them attached to each of their new villages.  They also need to dial back their build rate in line with demand like every other company in this sector is doing.  The only way to start meaningfully closing the gap between the share price and their theoretical NAV is to convert unsold stock into cash.

[winner (n)]

Basil said about Oceania ...When you are in a hole, stop digging.

Good advice

But do they realise they are in way?

[Breezy]

Thanks for sharing the REINZ data Winner.  Looks somewhat encouraging.
This from the other channel from Balance concerns me.  My opinion:  The new CEO absolutely must take action to address their ballooning debt burden.
Honestly, even if I was paid to do so, I wouldn't post on the other channel.

Love your cool looking  rep bar on the other channel however you could do better as it lacks the ultimate 'banned' finishing touch like mine. Still I've got a bit more to achieve to match the famous winner (n) who managed a permanent ban from hotcopper, next level achievement right there.

[Crackity]

Love your cool looking  rep bar on the other channel however you could do better as it lacks the ultimate 'banned' finishing touch like mine. Still I've got a bit more to achieve to match the famous winner (n) who managed a permanent ban from hotcopper, next level achievement right there.

Jeez that's a bit of the nose Couta - you haven't lived till you've been banned from at least one site

[Breezy]

Jeez that's a bit of the nose Couta - you haven't lived till you've been banned from at least one site

Haha exactly my point, Basil hasn't had a permanent ban from any site yet, getting a permanent ban from hotcopper is still the ultimate prize because its extremely rare and hard to achieve. Lol

[Basil]

LOL you guys.  Enjoyed the good banter reflecting on days gone bye, good way to start the week.

[Plata]

No, I have written extensively about this issue before.  The root issue the new CEO needs to address is the huge number of unsold care suites, more than 4 years of unsold stock at their most recent care suite sales run rate.  The other key issue is the older care villages they can't sell that are either loss making or so close to breakeven they're not giving shareholders any return on capital invested.   If they can't be sold maybe the villages should be closed, tarted up a bit and sold as cheap independent living units or emergency accommodation units for WINZ.

When you are in a hole, stop digging.  The first thing they need to do is stop building more care suites or dramatically dial down the number of them attached to each of their new villages.  They also need to dial back their build rate in line with demand like every other company in this sector is doing.  The only way to start meaningfully closing the gap between the share price and their theoretical NAV is to convert unsold stock into cash.

Yeah for sure. I imagine the trope of the silver tide makes it hard for them to take the loss, I know it was when I sold out although time has shown just how much worse it could have been  . I keep eyeing this one and ARV up time to time but struggle to get past the non-development business being so marginally profitable. I'm sure part of it is DMF maturity of the villages but it is hard to overlook the rapid growth in OPEX as well. As these businesses have grown their operations I would have expected OPEX growth to taper to be more in line with inflation, since adding a few hundred units when you only have a few hundred is a huge change vs adding a few hundred more units when you have thousands is a small change. IE % growth in units a year is not as high as it once was to my knowledge yet OPEX is still roaring away. Can DMF and other village revenue outpace OPEX going forward or will they always rely on rising house prices and development margin. These are the things I ponder.

[Teitei]

Yeah for sure. I imagine the trope of the silver tide makes it hard for them to take the loss, I know it was when I sold out although time has shown just how much worse it could have been  . I keep eyeing this one and ARV up time to time but struggle to get past the non-development business being so marginally profitable. I'm sure part of it is DMF maturity of the villages but it is hard to overlook the rapid growth in OPEX as well. As these businesses have grown their operations I would have expected OPEX growth to taper to be more in line with inflation, since adding a few hundred units when you only have a few hundred is a huge change vs adding a few hundred more units when you have thousands is a small change. IE % growth in units a year is not as high as it once was to my knowledge yet OPEX is still roaring away. Can DMF and other village revenue outpace OPEX going forward or will they always rely on rising house prices and development margin. These are the things I ponder.

Current state of property market - not a lot of gains to be made, especially by developers!

Buyers' market continues :

https://www.interest.co.nz/property/126861/housing-market-looks-set-end-summer-season-big-overhang-unsold-stock

The housing market is facing a mountain of uncertainty in the form of unsold stock as it heads towards the end of its peak selling season.

Unless there is an enormous surge in sales in March, and there doesn't appear to be any sign of that happening at this stage, the housing market looks set to be heading towards winter with a large overhang of unsold stock that's likely to weigh heavily on buying decisions and prices.

Latest developer/property company to suspend payments to investors :

https://www.nzherald.co.nz/business/oyster-fund-194m-profit-turns-to-225m-loss-pastoral-house-payments-stopped/GHH5NL44FFEMFFQN34J7D44CBQ/
paywalled

Property devaluations pushed a major property syndicate into negative territory, from a $19.4 million profit into a $22.5m loss, when $13.9m of gains on real estate turned into $28.7m paper or unrealised losses.

And investors in the Pastoral House fund, which owns a Wellington office block, got no payments from October.

Nor can they withdraw their original investment, which for one couple was initially $1 million.