ARV - Arvida Group

[winner (n)]

Half year out

Jeez Underlying Profit down 14% to 33.6m is worse than what I thought

Numbers don't seem to reconcile with the bullish commentary around sales etc ...must have lost heaps on day to day operations

Not a good result at all

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ARV/422439/408262.pdf

[winner (n)]

More sales than last year but for a raft of reasons gains less .....lnot good

Underlying profit likely to be down on last year ....not good

Definitely hasn't delivered on the eps accretive 'promise' made at that capital 2 years at $1.85

In my view Arvida continues to disappoint .......always showing promise but not delivering ....things don't seem to be getting better even though Jeremy did a bit of a rave about 'green shoots' ...and this Intergenerational Technology Learning sounds fun.

And so it turned out to be

[Shareguy]

A mixed bag is how I see it.

Slight beat on underlying profit

$33.6m against FB forecast $29m. Debt up and result includes $8.4m in insurance proceeds.

Financing and staffing costs well up as expected. Surprised at a dividend payment considering at upper end of debt limit.

[winner (n)]

Sell more make less seems to be the way these days ...wonder how RYM will go with their result

Shows times still tough in sector

Arv NTA now $2.00 ....must be a buy ...but NTA not a four letter word I'm told whatever that means

[Basil]

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ARV/422439/408265.pdf

A few thoughts.  Operating costs up a whopping 14%, more than double the rate of inflation have sucked the wind out of operating profitability.  Cash flow from operations down a lot.   Softer and slower housing market have also made their mark.
Underling eps of only 4.6 cps v 5.4 cps and outlook for ongoing high rates of cost increases makes it a hard stock to like on an earnings basis.
Discount to NTA is fully warranted.  NTA of $2 is a red herring really as much like OCA if you can't generate acceptable returns on care the NTA is meaningless.
Lowest of sector development margin and has been lowest for a long time, indicates systemic weaknesses in their procurement and development strategy.

My financial interest is as a bondholder and the revised banking facility gives them more than sufficient room to execute on their revised development program that's currently focused entirely on villa's.  I also note they are looking at winding back their FY25 development program, presumably to less than 200 units.  ~ 33% debt ratio looks pretty comfortable to me and I note this is well below OCA @ 38%.

I'm content and feel very comfortable to remain a bondholder.  I'd need to see this get right down towards the 12 month low of 91 cents to get me interested in the shares.  Current financial performance and near term outlook of this and OCA fully warrants them trading at a discount to NTA of at least 50%.

[Teitei]

Sell more make less seems to be the way these days ...wonder how RYM will go with their result

Shows times still tough in sector

Arv NTA now $2.00 ....must be a buy ...but NTA not a four letter word I'm told whatever that means

Do the RV companies operate in a different universe from the other property related companies?

They are still posting huge increases in property valuations when the likes of KPG actually accept market realities and reduce their property valuations!

No wonder the RVs' NTAs have little credibility with the market.

[Basil]

I hear what you are saying but tarring them all with the same brush is a little harsh.
The problem that I've alluded too for years is the pathetic returns on capital invested in care.
It's an intensive people business and the 4 year CAGR in the cost of providing care is 10% whereas the 4 year CAGR in care revenue is 5%, so it's getting materially worse every year.
I see this is a systemic unresolvable issue.  Others, on the other channel see it differently and good luck to them, they'll need it.
The less care in your business model the better. In my view, SUM is really the only company that's "fit for purpose" in terms of generating acceptable returns to shareholders in the current environment.  I think the market knows this which is why their SP is trading at only a fraction below NTA whereas OCA and ARV trade at about half.  RYM also have a high level of care in their model which is why they also trade at a sizeable discount to NTA.

[winner (n)]

I hear what you are saying but tarring them all with the same brush is a little harsh.
The problem that I've alluded too for years is the pathetic returns on capital invested in care.
It's an intensive people business and the 4 year CAGR in the cost of providing care is 10% whereas the 4 year CAGR in care revenue is 5%, so it's getting materially worse every year.
I see this is a systemic unresolvable issue.  Others, on the other channel see it differently and good luck to them, they'll need it.
The less care in your business model the better. In my view, SUM is really the only company that's "fit for purpose" in terms of generating acceptable returns to shareholders in the current environment.  I think the market knows this which is why their SP is trading at only a fraction below NTA whereas OCA and ARV trade at about half.  RYM also have a high level of care in their model which is why they also trade at a sizeable discount to NTA.

You really saying that a lot of the 'discount to NTA' is the future cost (losses) of caring for people and running villages (and of course HQ)

[BlackPeter]

Do the RV companies operate in a different universe from the other property related companies?

They are still posting huge increases in property valuations when the likes of KPG actually accept market realities and reduce their property valuations!

No wonder the RVs' NTAs have little credibility with the market.

I'd assume that the valuations of retirement villages go closer with the valuations of residential property, rather than with the valuation of office buildings, warehouses and shopping malls.

Property prices developed as well differently in different parts of the country.

Both factors might very well explain the difference to the property trusts.

[BlackPeter]

Half year out

Jeez Underlying Profit down 14% to 33.6m is worse than what I thought

Numbers don't seem to reconcile with the bullish commentary around sales etc ...must have lost heaps on day to day operations

Not a good result at all

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ARV/422439/408262.pdf

So bad?

Revenue up, NPAT up and NTA up - I guess things could have been worse for the half year where the property prices reached their low points.

But I guess this is what most investors see at the bottom of the cycle ...

I reccon we must be currently somewhere between capitulation and depression on the financial cycle, and for that - with all due respect - do I think the numbers look pretty good ;

[winner (n)]

So bad?

Revenue up, NPAT up and NTA up - I guess things could have been worse for the half year where the property prices reached their low points.

But I guess this is what most investors see at the bottom of the cycle ...

I reccon we must be currently somewhere between capitulation and depression on the financial cycle, and for that - with all due respect - do I think the numbers look pretty good ;

Nice diagram that eh Peter

Hopefully we are past Despondency and heading to Depression .....but some would be at hope eh

Spooky the shape of ARV share chart looks just like that diagram ....though I'd have to change some of the descriptions to reflect reality

[Basil]

ARV exits MSCI small companies index on Thursday.  It'll be fascinating to see the final match price for the day, the level at which institutions are prepared to put their hands up for heaps more with substantial index selling pressure.  Buying opportunity?  (For me, only if it screams "CHEEP' louder than a budgie lol).
Substantial ongoing cost increases in the care sector will never end.  https://www.1news.co.nz/2023/11/27/nurses-begin-fresh-round-of-campaigning-over-pay-and-conditions/?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Tuesday+28+November+2023

[Teitei]

You really saying that a lot of the 'discount to NTA' is the future cost (losses) of caring for people and running villages (and of course HQ)

Makes sense - as our Beagle usually does.

[Shareguy]

Time for some positive spin

ARV's Board remains confident enough to pay a dividend

ARV still well clear of its ICR covenants and gearing still within its target range.

ARV has noted several trends pointing to an improved 2H24 including: Applications up 24% compared to last year, with more higher margin Arena stock available to sell in 2H24.

October new sales have inflected higher. Aged care occupancy has ticked up to c.94%, from 93% across 1H24. 2H24 care earnings will also benefit for a full period from the c.10% increase in care worker funding providing from July 1.

Huge immigration and house prices on the up.  Talk of interest rate cuts....

Don't see much downside from here with the share price

[Basil]

If you want some as a play on the deep discount to NTA thing, I see this as a somewhat better opportunity, (opps sorry, that should be less worse, opportunity than OCA) as OCA's very high level of care acts as a massively powerful handbrake on future eps growth.  That said, in my view it's a close call as the ARV development team are the least skilled in this sector by quite a long way.   Pick the dog with the least fleas and mange...unfortunately they are both pretty badly infected.

Watch for that closing match price on Thursday this week as it exits the MSCI small company's index.  Massive selling pressure is coming shortly.