New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Arvida Group Limited</h2>
1H20 Preview — Track Record Traction
Arvida Group (ARV) will report its 1H20 result on 19 November and we expect solid underlying EPS growth of +5% with all areas of its business continuing to strengthen. A key driver is expected to be a lift in new sales and resales volumes, while its development progress will be of significant interest given the lift in build activity underway and the new brownfield sites acquired in early FY20. OUTPERFORM.
Key things to look for in the result:
<ul>
<li>Steady EPS growth in a low growth world — Robust underlying profit growth of +16% is forecast given development activity and accretive acquisitions, although EPS will be lower due to the issuance of new shares. We expect that ARV’s track record of consistent operational performance across its retirement and aged care portfolios, successful integration of acquisitions and its improving development capability to again be highlighted in 1H20.</li>
<li>Realised fair value gains from new sales and resales a key driver — We expect ARV to benefit from a lift in sales volumes and unit pricing combined with steady margins, leading to a strong uplift in realised gains.</li>
<li>Stable key metrics — ARV is expected to maintain high occupancy in its aged care operation and to continue to be one of the highest rated in the sector in terms of DHB certification levels across its care facilities with 66% of its aged care facilities having the highest 4 year DHB certification as at June 2019. We also expect resales vacancy to remain under control given robust demand.</li>
<li>Development update as ARV ramps up activity — We expect ARV to be on track for its FY21 build target of 200 units and beds and we forecast 170 units to be delivered in FY20. In FY20 ARV is building across nine brownfield sites and its first greenfield site at Waimea Plains in Richmond.</li>
</ul>
Investor briefing for 19 November<a target="_blank"></a>
Conference call: 10.30am (NZ time) NZ 0800 667 018, AU 1800 148 258. Passcode: 3777398
Figure 1. Summary of 1H20E forecast (NZ$m)
<table class="table table-striped">
<thead>
<tr>
<td style="width: 119.8pt;">
Six months ending 30 September
</td>
<td style="width: 42.8pt;">
1H19
</td>
<td style="width: 42.8pt;">
1H20E
</td>
<td style="width: 42.8pt;">
% chg
</td>
</tr>
</thead>
<tbody>
<tr>
<td style="width: 119.8pt;">
Total revenue
</td>
<td style="width: 42.8pt;">
87.4
</td>
<td style="width: 42.8pt;">
95.7
</td>
<td style="width: 42.8pt;">
9.5%
</td>
</tr>
<tr>
<td style="width: 119.8pt;">
Normalised or underlying profit
</td>
<td style="width: 42.8pt;">
17.9
</td>
<td style="width: 42.8pt;">
20.8
</td>
<td style="width: 42.8pt;">
16.2%
</td>
</tr>
<tr>
<td style="width: 119.8pt;">
Underlying EPS (cps)
</td>
<td style="width: 42.8pt;">
4.3
</td>
<td style="width: 42.8pt;">
4.5
</td>
<td style="width: 42.8pt;">
5.4%
</td>
</tr>
<tr>
<td style="width: 119.8pt;">
DPS (cps)
</td>
<td style="width: 42.8pt;">
2.6
</td>
<td style="width: 42.8pt;">
2.9
</td>
<td style="width: 42.8pt;">
9.6%
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, company reports
<div class="content-highlight">
Investment View
ARV has future growth prospects centred on brownfield and greenfield expansion. It has a defensive earnings profile given its heavily needs-based portfolio, and has only a modest Auckland exposure. Relative to its listed peers, ARV has an attractive dividend and compares favourably on P/NAV and earnings multiples. Our rating is OUTPERFORM.
</div>
Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Arvida Group Limited
1H20 Preview — Track Record Traction
Arvida Group (ARV) will report its 1H20 result on 19 November and we expect solid underlying EPS growth of +5% with all areas of its business continuing to strengthen. A key driver is expected to be a lift in new sales and resales volumes, while its development progress will be of significant interest given the lift in build activity underway and the new brownfield sites acquired in early FY20. OUTPERFORM.
Key things to look for in the result:

Steady EPS growth in a low growth world — Robust underlying profit growth of +16% is forecast given development activity and accretive acquisitions, although EPS will be lower due to the issuance of new shares. We expect that ARV’s track record of consistent operational performance across its retirement and aged care portfolios, successful integration of acquisitions and its improving development capability to again be highlighted in 1H20.
Realised fair value gains from new sales and resales a key driver — We expect ARV to benefit from a lift in sales volumes and unit pricing combined with steady margins, leading to a strong uplift in realised gains.
Stable key metrics — ARV is expected to maintain high occupancy in its aged care operation and to continue to be one of the highest rated in the sector in terms of DHB certification levels across its care facilities with 66% of its aged care facilities having the highest 4 year DHB certification as at June 2019. We also expect resales vacancy to remain under control given robust demand.
Development update as ARV ramps up activity — We expect ARV to be on track for its FY21 build target of 200 units and beds and we forecast 170 units to be delivered in FY20. In FY20 ARV is building across nine brownfield sites and its first greenfield site at Waimea Plains in Richmond.

Investor briefing for 19 November
Conference call: 10.30am (NZ time) NZ 0800 667 018, AU 1800 148 258. Passcode: 3777398
Figure 1. Summary of 1H20E forecast (NZ$m)




Six months ending 30 September


1H19


1H20E


% chg






Total revenue


87.4


95.7


9.5%




Normalised or underlying profit


17.9


20.8


16.2%




Underlying EPS (cps)


4.3


4.5


5.4%




DPS (cps)


2.6


2.9


9.6%




Source: Forsyth Barr analysis, company reports

Investment View
ARV has future growth prospects centred on brownfield and greenfield expansion. It has a defensive earnings profile given its heavily needs-based portfolio, and has only a modest Auckland exposure. Relative to its listed peers, ARV has an attractive dividend and compares favourably on P/NAV and earnings multiples. Our rating is OUTPERFORM.

Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Arvida Group Limited: 1H20 Preview — Track Record Traction

<h2>Arvida Group Limited</h2>
A Spring in its Step
Arvida Group (ARV) has released its September investor update and it remains on track for strong EPS growth in FY20 driven by increasing volumes of sales and attractive resales margins. We have not changed our forecasts and remain with an OUTPERFORM rating.
Well on track in FY20
ARV has released its September update for investors indicating it remains on track for strong EPS growth in FY20. ARV has advised that total gains on new sales and resales in 1H20 are projected to be +40% up on the pcp and this looks to be on track with our FY20 forecasts. The 2Q20 was ARV’s best quarter ever in terms of gains on new sales and resales, with ARV expecting to sell around 120 units and resold units enjoying a strong margin of ~27% in 2Q20. ARV noted that pricing remains robust with average resales pricing having lifted +3% above the pricing assumed by CBRE in its 31 March 2019, portfolio revaluation.
A top rated large-scale care operator
ARV’s aged care remains very full at 95% average occupancy across its large care operation of 1,722 beds. ARV now has 18 of 26 care facilities with the maximum 4 year DHB certification following recent audits. A further four facilities are being audited in the coming months.
Development credentials
ARV reiterated that it is on track to build ~200 units and care suites in FY20 and to lift this to around 250 in FY21. In FY20 ARV is expected to deliver new stock across 10 sites in eight different regions. A very exciting aspect of ARV’s recent NZ$180m acquisition of three villages in Tauranga and Queenstown was the +37% expansion in ARV’s development pipeline to over 1,800 units and beds. ARV has added to its development capability by absorbing the village and construction teams at Tauranga and Queenstown. This adds to the in-house expertise and we expect will be positive for development margins as more of the development function is internalised. ARV continues to rapidly evolve and expand since its listing in 2014.
Asset tour to new Bay of Plenty and Central Otago sites
We recently visited with management at the villages acquired in Tauranga (Bethlehem Country Club and adjacently located Bethlehem Shores) and in Central Otago (Queenstown Country Club). We were impressed with the quality of the existing independent living villas (ILUs) and community facilities, local village management and the development potential that exists. Not only is there significant further ILU expansion, but the Bethlehem Shores and Queenstown Country Club are very well suited to the rollout of a premium aged care product which will significantly enhance the villages.&nbsp;&nbsp;
<div class="content-highlight">
Investment View
ARV has future growth prospects centred on brownfield and greenfield expansion. It has a defensive earnings profile given its heavily needs-based portfolio, and has only a modest Auckland exposure. Relative to its listed peers, ARV has an attractive dividend and compares favourably on P/NAV and earnings multiples. Our rating is OUTPERFORM.
</div>
Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Arvida Group Limited
A Spring in its Step
Arvida Group (ARV) has released its September investor update and it remains on track for strong EPS growth in FY20 driven by increasing volumes of sales and attractive resales margins. We have not changed our forecasts and remain with an OUTPERFORM rating.
Well on track in FY20
ARV has released its September update for investors indicating it remains on track for strong EPS growth in FY20. ARV has advised that total gains on new sales and resales in 1H20 are projected to be +40% up on the pcp and this looks to be on track with our FY20 forecasts. The 2Q20 was ARV’s best quarter ever in terms of gains on new sales and resales, with ARV expecting to sell around 120 units and resold units enjoying a strong margin of ~27% in 2Q20. ARV noted that pricing remains robust with average resales pricing having lifted +3% above the pricing assumed by CBRE in its 31 March 2019, portfolio revaluation.
A top rated large-scale care operator
ARV’s aged care remains very full at 95% average occupancy across its large care operation of 1,722 beds. ARV now has 18 of 26 care facilities with the maximum 4 year DHB certification following recent audits. A further four facilities are being audited in the coming months.
Development credentials
ARV reiterated that it is on track to build ~200 units and care suites in FY20 and to lift this to around 250 in FY21. In FY20 ARV is expected to deliver new stock across 10 sites in eight different regions. A very exciting aspect of ARV’s recent NZ$180m acquisition of three villages in Tauranga and Queenstown was the +37% expansion in ARV’s development pipeline to over 1,800 units and beds. ARV has added to its development capability by absorbing the village and construction teams at Tauranga and Queenstown. This adds to the in-house expertise and we expect will be positive for development margins as more of the development function is internalised. ARV continues to rapidly evolve and expand since its listing in 2014.
Asset tour to new Bay of Plenty and Central Otago sites
We recently visited with management at the villages acquired in Tauranga (Bethlehem Country Club and adjacently located Bethlehem Shores) and in Central Otago (Queenstown Country Club). We were impressed with the quality of the existing independent living villas (ILUs) and community facilities, local village management and the development potential that exists. Not only is there significant further ILU expansion, but the Bethlehem Shores and Queenstown Country Club are very well suited to the rollout of a premium aged care product which will significantly enhance the villages.&nbsp;&nbsp;

Investment View
ARV has future growth prospects centred on brownfield and greenfield expansion. It has a defensive earnings profile given its heavily needs-based portfolio, and has only a modest Auckland exposure. Relative to its listed peers, ARV has an attractive dividend and compares favourably on P/NAV and earnings multiples. Our rating is OUTPERFORM.

Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Arvida Group Limited: A Spring in Its Step

<h2>Arvida Group Limited</h2>
Central Otago Gold
Arvida Group (ARV) has settled the acquisition of&nbsp;its three new villages which has increased its portfolio to 30 villages and significantly lifted its development pipeline, giving ARV the confidence and capability to lift its build rate to 250+ units from FY21.&nbsp;OUTPERFORM.
What’s changed?
<ul>
<li>Earnings: FY20E +2%, FY21E +6% and FY22E +5%</li>
<li>Target Price: Lifted from NZ$1.65 to NZ$1.75</li>
<li>Rating:&nbsp;Remains OUTPERFORM</li>
</ul>
Further villages added to a large and geographically diverse portfolio
ARV settled the NZ$180m purchase of Bethlehem Country Club and Bethlehem Shores (both in Tauranga and adjacent to each other) and Queenstown Country club on 31 July 2019. The acquisition was funded by an NZ$50m placement, an NZ$92m rights issue, the issue of NZ$10m of shares to the vendor, and bank debt. ARV noted the acquisition is expected to be EPS accretive with a circa single mid digit lift in both FY20E (pro-forma) and FY21E EPS. Gearing (net debt to net debt + equity) post acquisition and capital raise is ~25%.
30 villages and a pipeline of 1,357 units, plus a lift in its build rate
The acquisition brings ARV’s total portfolio to 30 villages and two greenfield sites versus just 18 villages at its IPO in 2014. The portfolio comprises 3,677 units&nbsp;and beds with the 326 independent living units (ILUs) acquired. The development pipeline has lifted +37% to 1,357 ILUs, care suites and beds. ARV plans to lift its build rate to 200 ILUs, from 170 ILUs and care suites in FY20, and to 250+ ILUs and care suites from FY21 onwards, compared to 200 previously.
Upgraded earnings forecasts
The new villages have expected resales and new sales pricing well above the existing averages for the ARV portfolio. New sales are also expected to have a higher development margin than the existing portfolio.&nbsp; We have assumed that ARV sells the additional new units and resales units in line with its guidance for FY20 (proforma) and FY21. We have lifted ARV’s build rate to 200 units in FY20 and to 250+ in FY21 and FY22. These changes have lifted our underlying profit forecasts significantly, but in terms of the EPS lift, given the new shares on issue, the growth rate is in line with ARV’s guidance for FY20 and FY21.
Target price lifted to NZ$1.74
Our 12 month target price has lifted from NZ$1.64 to NZ$1.74 on the back of a similar lift in our DCF valuation. The valuation has been boosted by the adoption of our new risk free rate of 2% and market risk premium of 7.5%, which has been partially offset by more conservative, longer term growth rates.&nbsp;&nbsp;
<div class="content-highlight">
Investment View
ARV has future growth prospects centred on brownfield and greenfield expansion. It has a defensive earnings profile given its heavily needs-based portfolio, and has only a modest Auckland exposure. Relative to its listed peers, ARV has an attractive dividend and compares favourably on P/NAV and earnings multiples. Our rating is OUTPERFORM.
</div>
&nbsp;Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Arvida Group Limited
Central Otago Gold
Arvida Group (ARV) has settled the acquisition of&nbsp;its three new villages which has increased its portfolio to 30 villages and significantly lifted its development pipeline, giving ARV the confidence and capability to lift its build rate to 250+ units from FY21.&nbsp;OUTPERFORM.
What’s changed?

Earnings: FY20E +2%, FY21E +6% and FY22E +5%
Target Price: Lifted from NZ$1.65 to NZ$1.75
Rating:&nbsp;Remains OUTPERFORM

Further villages added to a large and geographically diverse portfolio
ARV settled the NZ$180m purchase of Bethlehem Country Club and Bethlehem Shores (both in Tauranga and adjacent to each other) and Queenstown Country club on 31 July 2019. The acquisition was funded by an NZ$50m placement, an NZ$92m rights issue, the issue of NZ$10m of shares to the vendor, and bank debt. ARV noted the acquisition is expected to be EPS accretive with a circa single mid digit lift in both FY20E (pro-forma) and FY21E EPS. Gearing (net debt to net debt + equity) post acquisition and capital raise is ~25%.
30 villages and a pipeline of 1,357 units, plus a lift in its build rate
The acquisition brings ARV’s total portfolio to 30 villages and two greenfield sites versus just 18 villages at its IPO in 2014. The portfolio comprises 3,677 units&nbsp;and beds with the 326 independent living units (ILUs) acquired. The development pipeline has lifted +37% to 1,357 ILUs, care suites and beds. ARV plans to lift its build rate to 200 ILUs, from 170 ILUs and care suites in FY20, and to 250+ ILUs and care suites from FY21 onwards, compared to 200 previously.
Upgraded earnings forecasts
The new villages have expected resales and new sales pricing well above the existing averages for the ARV portfolio. New sales are also expected to have a higher development margin than the existing portfolio.&nbsp; We have assumed that ARV sells the additional new units and resales units in line with its guidance for FY20 (proforma) and FY21. We have lifted ARV’s build rate to 200 units in FY20 and to 250+ in FY21 and FY22. These changes have lifted our underlying profit forecasts significantly, but in terms of the EPS lift, given the new shares on issue, the growth rate is in line with ARV’s guidance for FY20 and FY21.
Target price lifted to NZ$1.74
Our 12 month target price has lifted from NZ$1.64 to NZ$1.74 on the back of a similar lift in our DCF valuation. The valuation has been boosted by the adoption of our new risk free rate of 2% and market risk premium of 7.5%, which has been partially offset by more conservative, longer term growth rates.&nbsp;&nbsp;

Investment View
ARV has future growth prospects centred on brownfield and greenfield expansion. It has a defensive earnings profile given its heavily needs-based portfolio, and has only a modest Auckland exposure. Relative to its listed peers, ARV has an attractive dividend and compares favourably on P/NAV and earnings multiples. Our rating is OUTPERFORM.

&nbsp;Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

New Zealand

Arvida Group Ltd owns and operates senior care living facilities in New Zealand.

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Arvida (ARV NZ)

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Arvida Group Limited: Central Otago Gold

Arvida Group Limited Central Otago Gold Arvida Group (ARV) has settled the acquisition of its three new villages which has increased its portfolio...

Forsyth Barr

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