OCA - Oceania Healthcare

[Whacc]

Arvida would be struggling to demonstrate that Arena acquisition was accretive as well.

They'd say too early to tell and just give us time

Arena was a terrible acqusition.
On the block for 3 years, picked over by everyone with no bites.

Reweighted their portfolio to ILU though, which is apparently all that matters.

[Basil]

They should be able to earn steady income in the years ahead so with reasonable gearing their bonds are probably quite good buying at about 5.75% yield to maturity with the 10 year Govt stock rate at about 3.5%, (2.25% premium to Govt stock seems about right to me).

[winner (n)]

They should be able to earn steady income in the years ahead so with reasonable gearing their bonds are probably quite good buying at about 5.75% yield to maturity with the 10 year Govt stock rate at about 3.5%, (2.25% premium to Govt stock seems about right to me).

OCA020 5.75% is about 2.5% points higher than 5 year govt stock

Interestingly of the things listed on NZDX these are 2nd highest yields - Synlait 2024 ones are over 8% - these two seen as the 'riskiest' companies on the NZDX

Others in sector ARV quoted at  5,32% / Ryman at 4.91% / SUM 2027 at 5.23% and SUM 2025 at 4.85%

So Oceania seen as the 'riskiest' of the main players in the sector (spooky how that pecking order pops up again)

Many would say buying the OCA shares with a yield of 4.78% is a better 'bet' than those bonds at 5.75%

Interesting bonds

[Whacc]

Many would say buying the OCA shares with a yield of 4.78% is a better 'bet' than those bonds at 5.75%

Interesting bonds

If I was only interested in yield then the bonds are definitely a better bet.

For the hard time that care gets, at least that regular cash flow is there to support the coupon.

[Basil]

If I was only interested in yield then the bonds are definitely a better bet.

For the hard time that care gets, at least that regular cash flow is there to support the coupon.

Finally something we can agree on.

As you know Winner, bonds and equities have very, very different risk profiles although for the first time in decades their values moved in the same direction in the first half of this year.  I see that as an aberration and highly unlikely to continue.  Today OCA bonds were trading at a 50 bps premium to SUM.   I don't think there's any material risk of OCA defaulting so a 250 bps premium over Govt stock and 50 bps over SUM is probably reasonably good buying for the very modest risk involved.  5.75%.  Disc: I bought a few OCA bonds today and a few SUM bonds yesterday.

[winner (n)]

Another month passes and again the market demonstrates its more 'attracted' to SUM than to OCA .... the trend since OCA listed continues.

I know many of you will say such a measure is useless and meaningless and a load of the proverbial .... but I think it's intriguing and if nothing else its a beautiful chart

Must mean something

Wish OCA would hurry up and get back to $1.60 as SUM will probably be $20 by then

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[Auto Rower]

Not at all meaningless ,It means to sum at near peak sp  and oca etc at bargain prices

[Basil]

Interesting interview with the CEO of Arvida on breakfast T.V. this morning.
Nurses now being underfunded by $20,000 - $25,000 per annum  (up from figures previously talked about by other sector participants of $15,000 - $20,000 per annum each).
1,000 beds out of 40,000 in this sector have been decommissioned due to chronic underfunding in just the last 6 months !
Govt funding round adjustment this year was directed at minimum wage earners, others in sector and other costs incurred only received just over 1% funding increase, how miserable is that !  (This is absurd when inflation is at 7.3%), he didn't say that but I was thinking it.

He did not look like a happy man at all.  Huge pressure on the care sector.  He stated we need a complete overhaul of the funding model for late stage care.  Good luck with getting that from Labour or National if they get into power in due course.

Posted here because care makes up 61% of OCA's units and they are by far the most exposed.

OCA bonds should be fine, moderate gearing and stable cash flows and they will make profits in line with historical returns but I really don't see how earnings can grow meaningfully in the current chronically underfunded care sector environment. 
The pattern of increasing DMF revenues ostensibly all being eaten up by rapidly escalating care costs looks set to continue for many years to come.
Others see it differently, that's fine and good luck to them, I reckon they'll need it !

[Whacc]

1,000 beds out of 40,000 in this sector have been decommissioned due to chronic underfunding in just the last 6 months !

...

The pattern of increasing DMF revenues ostensibly all being eaten up by rapidly escalating care costs looks set to continue for many years to come.

That's assuming (big) that DMF & resale gains will remain stagnant as beds become scarce when demand is ever increasing.
Each one of these decommissions is increasing that scarcity.
Seems like deliberate ignorance to the law of supply & demand on your part to satisfy your entrenched position.

Good luck with getting that from Labour or National if they get into power in due course.

Also assumes that this won't become an increasingly big political issue as people cotton onto the fact that all standard beds are being decommissioned as uneconomically unviable.
Only very premium beds will be available and not nearly enough of them.

That narrative is a big issue for Labour's traditional constituency.
Also, as previously mentioned, the most engaged generational political bloc becoming aware that something they need (and moreover feel *entitled* to) isn't available to them. Look out.

[Basil]

The laws of supply and demand don't apply, (in terms of price movement), if the price of care is set by the Government at a fixed rate that gives a woefully inadequate return on equity.  This Government is happy to see "fat cat" (I believe that's the prevailing line of thought in Wellington) retirement companies get badly squeezed.  Its their way of taxing tax free gains on resales of ILU's.  In terms of the listed sector OCA feels the full force of this with their 61% care v 39% ILU.

[Whacc]

The laws of supply and demand don't apply, (in terms of price movement), if the price of care is set by the Government at a fixed rate that gives a woefully inadequate return on equity.  This Government is happy to see "fat cat" (I believe that's the prevailing line of thought in Wellington) retirement companies get badly squeezed.  Its their way of taxing tax free gains on resales of ILU's.  In terms of the listed sector OCA feels the full force of this with their 61% care v 39% ILU.

The laws of supply and demand absolutely apply to the ingoing price of a care suite (and therefore the resale gain and DMF revenue streams).

? ? ? ? ?

Also, I watched Jeremy Nicol's interview.  If you don't think that a shortage / underfunding of dementia beds (in particular) will not become a huge political issue as it becomes increasingly evident then, yeah, we're not going to agree.
If families need to start caring for relatives with dementia then it will hit home pretty fast.

[Minimoke]

We should remember residents of Aged Care Facilities pay their own way 100% of the time.

Until they reach a certain "poverty" threshold. Which is currently about $256,554 for a couple in care. Or if one still lives in own home then its $140,495.

With places like OCA's bellview it appears they are trying to attract high net worth residents.

[Minimoke]

Fun fact. Stats NZ reckon that by 2028 there will be more than a million people aged 65+.

Pressure will continue for them to leave their leafy suburbs so younger folk and families have somewhere to live.

An aging population is something no government can afford to ignore. If for no other reason old folk vote.

[Basil]

Fun fact. Stats NZ reckon that by 2028 there will be more than a million people aged 65+.

Pressure will continue for them to leave their leafy suburbs so younger folk and families have somewhere to live.

An aging population is something no government can afford to ignore. If for no other reason old folk vote.

Problem for OCA is they are targeting the 85+ crowd and that's really a late 2030's and 2040's tsunami.

[Minimoke]

Staffing problem solved. Andrew Littles brilliant move is to use Shortland Street as a vehicle for promoting nursing as a career option.