(STRICT) OCA - Oceania Healthcare

[Poet]

From the Nov 25 Earnings Call

Kathryn Waugh talking about operating cashflow

While there is a one-off GST refund relating to development expenditure, the underlying themes reflect stronger sales activity, higher care occupancy, and the early benefits of the cost measures now in place. As development stock reduces and as our settlements continue to flow, we expect operating cash generation to strengthen even further during the second half.

[winner (n)]

From the Nov 25 Earnings Call

Kathryn Waugh talking about operating cashflow

While there is a one-off GST refund relating to development expenditure, the underlying themes reflect stronger sales activity, higher care occupancy, and the early benefits of the cost measures now in place. As development stock reduces and as our settlements continue to flow, we expect operating cash generation to strengthen even further during the second half.

Doesn't answer why a one off refund. Did they pay GST when they didn't have too or something?

Just curious

[Basil]

From the Nov 25 Earnings Call

Kathryn Waugh talking about operating cashflow

While there is a one-off GST refund relating to development expenditure, the underlying themes reflect stronger sales activity, higher care occupancy, and the early benefits of the cost measures now in place. As development stock reduces and as our settlements continue to flow, we expect operating cash generation to strengthen even further during the second half.

A question you might like to ponder. Why did it take a new CEO to initiate cost out initiatives, isn't that what a decent quality CFO would have recommended to the board many years ago ?  There are high quality CFO's who help drive EPS growth and there are people who simply compile the numbers...

[Poet]

A question you might like to ponder. Why did it take a new CEO to initiate cost out initiatives, isn't that what a decent quality CFO would have recommended to the board many years ago ?  There are high quality CFO's who help drive EPS growth and there are people who simply compile the numbers...

Absolutely, no argument from me there.

I am on record saying that IMO this is one of the worst managed and governed and opaque businesses on the NZX (and that's saying something!)

[winner (n)]

Absolutely, no argument from me there.

I am on record saying that IMO this is one of the worst managed and governed and opaque businesses on the NZX (and that's saying something!)

That's saying something Poet .....and I agree

Love the way they now have a 'one off' line and often use 'if only this' had happened things would have looked better.

[Basil]

Absolutely, no argument from me there.

I am on record saying that IMO this is one of the worst managed and governed and opaque businesses on the NZX (and that's saying something!)

It seems Mr market agrees, down to 68 cents.  Is this company headed back for another test of 50 cents and would it be worth buying there as a trade ?, (notice I said a trade not a long term hold).  Tricky questions for you guys to ponder over Easter.

[ValueNZ]

I take problem with the below statement:

"Capital is increasingly directed toward assets and locations where returns are strongest"

Meanwhile $100m went towards debt reduction. Meaning they think debt reduction results in the greatest return for their money (circa 5%?)??

Also is the implication is that they weren't already allocating capital in a manner that maximises shareholder returns?

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I also take issue with the statements surrounding sustainability throughout the annual reports. After all, the social responsibility of business Is to increase its profits. For example, the Board views sustainability not as a standalone workstream, but as part of responsible stewardship across capital allocation, development, operations, people and resident outcomes.

By prioritising "responsible stewardship" over simple profit/value maximisation, management and the board are essentially using shareholder capital to advance its own social agenda without explicit authorization. This creates an agency problem that prioritises philanthropic objectives, forgoing the best use of capital thus eroding long-term value.

I would suggest if Suzanne wishes to pursue philanthropic objectives, she do it with her own massive $2.4m pay package, rather than our precious capital.

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When questioned on the earnings call as to whether Oceania would consider a strategic review to close the NTA gap, Kathryn said this.

I guess what that one is probably pointing at is whether we consider a share buyback. I know that's been a topic of conversation over the last couple of years. And I feel like I've spoken too much, so I'll let Suzanne answer this one.

Whilst a share buyback may be the result of a strategic review, it does not necessarily entail one. Full sale of the business may also be the result of a strategic review and should at least be considered given the persistent undervaluation of Oceania.

Suzzane then said:

Yes. Thank you. So we hear the question and we recognize the discount with accretion possible at the current share price. But right now, our priority is cash generation and the balance sheet discipline that we've spoken to. So we will continue to review, but no update at this stage.

Management and the board recognise the value accretion possible with a buyback, but choose not to act on it. This is to me, a breach of fiduciary duty. Maybe not in the court of law. But in the court of public opinion? For sure.

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Look at the way Kathyrn answered my question here...

Q. Will tax efficiency be a consideration in whether an unimputed dividend should be paid in the future?

A. Yes, that one, I'd probably have to defer to our tax experts. But absolutely, it's something that we look at when we do them. And for us, right now, the priority is very much around turning the dividends back on.

Why does she need to defer to the tax experts? The CFO doesn't know there are millions and millions in tax losses? And imputation credits come from tax payments once the losses are fully used...?

Why would the priority be on turning dividends back on whilst they are unimputed. The ultimate goal is to maximise shareholder value. You do not do that by forcing taxable unimputed dividends down your investors throats who require you to act in their best interests by compounding capital at the historical rates you have through development of new villages OR buying back shares.

[Shareguy]

Good questions ValueNZ.

Craigs latest note.  Not feeling the love either....

Investment case remains uncompelling: retain Neutral
CEO Suzanne Dvorak is doing a good job turning OCA around, balancing the
need for better financial performance with obligations to residents. That said,
the investment case remains far from compelling. Per our recent note on
RYM, we think investors will eventually demand a 6%+ CFEO yield on mature
aged care/retirement businesses. We forecast positive CFEO for OCA in FY27
and FY28, but a CFEO yield of <2% and a dividend yield of c.1%. In this
context, and given OCA's mixed track record in development and lack of
scale, we are unconvinced OCA's strategy to re-ramp the build rate to 150+
from FY31 will add shareholder value. This all suggests that OCA's current
valuation (0.44x NTA) is fair, and with others preferred, we retain Neutral.

[Buzz]

Forbar rating Outperform, with 12 mth TP $1.05 +47.9% from $0.71 at 22 May.

[Basil]

Good questions ValueNZ.

Craigs latest note.  Not feeling the love either....

Investment case remains uncompelling: retain Neutral
CEO Suzanne Dvorak is doing a good job turning OCA around, balancing the
need for better financial performance with obligations to residents. That said,
the investment case remains far from compelling. Per our recent note on
RYM, we think investors will eventually demand a 6%+ CFEO yield on mature
aged care/retirement businesses. We forecast positive CFEO for OCA in FY27
and FY28, but a CFEO yield of <2% and a dividend yield of c.1%. In this
context, and given OCA's mixed track record in development and lack of
scale, we are unconvinced OCA's strategy to re-ramp the build rate to 150+
from FY31 will add shareholder value. This all suggests that OCA's current
valuation (0.44x NTA) is fair, and with others preferred, we retain Neutral.

Stephen Ridgewell of Craigs has the best handle on this sector of any of the analysts by miles in my opinion. 

[Basil]

I would suggest if Suzanne wishes to pursue philanthropic objectives, she do it with her own massive $2.4m pay package, rather than our precious capital.

She and Katheryn have very strong ESG beliefs  they are hoisting upon all shareholders whether they like it or not.  When Earl Gasparich ran the company he was on $600K.  9 years later Suzanne is being paid 4 times that and there's been no dividends for years. 

Management and the board recognize the value accretion possible with a buyback, but choose not to act on it. This is to me, a breach of fiduciary duty. Maybe not in the court of law. But in the court of public opinion? For sure.

They're complete Muppets.

A. Yes, that one, I'd probably have to defer to our tax experts. But absolutely, it's something that we look at when we do them. And for us, right now, the priority is very much around turning the dividends back on.

They're doing a massive cost out program.  She's been there ever since it listed.  It begs the obvious question, why wasn't she driving the cost out efficiency program many years ago ?  There are bean counters that do only that and there are those that add a lot of value to shareholders through their intellectual capabilities they apply to drive a business.   The way she answered this question is laughable.

For me in this sector its SUM or None...I choose None until the real estate market climbs out of its endless malaise.