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).

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Equity Bottom-Up

<h2>Oceania Healthcare</h2>
1H20 Result — Rising Tide
Oceania Healthcare (OCA) has reported a solid 1H20 result, slightly ahead of our expectations in most areas, and delivered +15% EPS growth that was boosted by new sales volumes and margins. OCA continues to make progress in terms of its development activity and the transition of its older care portfolio; meanwhile, sentiment continues to lift on the back of an improved housing market. Our rating remains NEUTRAL.
What’s changed?
<ul>
<li>Earnings: FY21 up +1% and FY22 up +4%</li>
<li>Target Price: Lifted from NZ$1.08 to NZ$1.24</li>
<li>Rating: Remains NEUTRAL</li>
</ul>
Slightly better than expectations in most areas
1H20 underlying profit was NZ$24.1m, up +17.6%. Gains were predominantly from its high priced and high margin sales at its premium Auckland villages, which led to a +70% lift in realised gains and a +26% increase in underlying EBITDA to NZ$34.1m. The 1H20 dividend was up +10% to 2.3cps. Gearing was steady at 32%, as was the NAV at NZ$1.15, with operating cash flow the standout at NZ$57m, up +21%.
No earnings guidance but on track for a solid 2H20
OCA confirmed it is on track to deliver its target of 265 care suites and units in FY20, and demand indicators remain robust. With OCA continuing to sell down high priced and high margin Auckland stock in 2H20, we continue to expect solid EPS growth of ~15% in FY20.
Development and care transition progress
OCA is hitting development goals in terms of volume, margins and achieving consents, and is also transitioning its older aged care portfolio in line with previously stated objectives. OCA’s large aged care operation has some defensive attributes, but remains low growth and this, combined with OCA moving to more regional (non-Auckland) developments, will make it difficult to sustain the FY20 growth rate into FY21 and FY22.
Forecast changes
We have lifted medium to longer term earnings slightly due to higher average resales pricing and stronger prices for care suites. We have also lifted resales and news sales margins for care suites. There is evidence in this result of a lift in demand for OCA’s unique care suite product. Underlying profit forecasts have lifted by +1% in FY21 and +4% in FY22. As a result, and from the time value of money impact since our last update, our DCF valuation has lifted from NZ$1.03 to NZ$1.18. Our target price is NZ$1.24, up from NZ$1.08.&nbsp;
<div class="content-highlight">
Investment View
OCA has future growth prospects centred on brownfield expansion and land bank acquisitions. A strong ‘needs based’ portfolio gives OCA a defensive earnings profile, which should provide a level of resilience when we see a downturn in the residential housing market. Compared to its peers it has an older and diverse portfolio mix which provides some challenges and opportunities. NEUTRAL.&nbsp;
</div>
Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Oceania Healthcare
1H20 Result — Rising Tide
Oceania Healthcare (OCA) has reported a solid 1H20 result, slightly ahead of our expectations in most areas, and delivered +15% EPS growth that was boosted by new sales volumes and margins. OCA continues to make progress in terms of its development activity and the transition of its older care portfolio; meanwhile, sentiment continues to lift on the back of an improved housing market. Our rating remains NEUTRAL.
What’s changed?

Earnings: FY21 up +1% and FY22 up +4%
Target Price: Lifted from NZ$1.08 to NZ$1.24
Rating: Remains NEUTRAL

Slightly better than expectations in most areas
1H20 underlying profit was NZ$24.1m, up +17.6%. Gains were predominantly from its high priced and high margin sales at its premium Auckland villages, which led to a +70% lift in realised gains and a +26% increase in underlying EBITDA to NZ$34.1m. The 1H20 dividend was up +10% to 2.3cps. Gearing was steady at 32%, as was the NAV at NZ$1.15, with operating cash flow the standout at NZ$57m, up +21%.
No earnings guidance but on track for a solid 2H20
OCA confirmed it is on track to deliver its target of 265 care suites and units in FY20, and demand indicators remain robust. With OCA continuing to sell down high priced and high margin Auckland stock in 2H20, we continue to expect solid EPS growth of ~15% in FY20.
Development and care transition progress
OCA is hitting development goals in terms of volume, margins and achieving consents, and is also transitioning its older aged care portfolio in line with previously stated objectives. OCA’s large aged care operation has some defensive attributes, but remains low growth and this, combined with OCA moving to more regional (non-Auckland) developments, will make it difficult to sustain the FY20 growth rate into FY21 and FY22.
Forecast changes
We have lifted medium to longer term earnings slightly due to higher average resales pricing and stronger prices for care suites. We have also lifted resales and news sales margins for care suites. There is evidence in this result of a lift in demand for OCA’s unique care suite product. Underlying profit forecasts have lifted by +1% in FY21 and +4% in FY22. As a result, and from the time value of money impact since our last update, our DCF valuation has lifted from NZ$1.03 to NZ$1.18. Our target price is NZ$1.24, up from NZ$1.08.&nbsp;

Investment View
OCA has future growth prospects centred on brownfield expansion and land bank acquisitions. A strong ‘needs based’ portfolio gives OCA a defensive earnings profile, which should provide a level of resilience when we see a downturn in the residential housing market. Compared to its peers it has an older and diverse portfolio mix which provides some challenges and opportunities. NEUTRAL.&nbsp;

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

Oceania Healthcare: 1H20 Result — Rising Tide

<h2>Oceania Healthcare (OCA)</h2>
1H20 result – initial thoughts
OCA has reported a result slightly stronger in most areas than we were forecasting, in particular&nbsp;in terms of&nbsp;operating costs and margins.
1H20 underlying net profit after tax (NPAT) which strips out unrealised revaluation gains and deferred tax was NZ$24.1m, up +17.6%, slightly ahead our forecast of NZ$22.9m. OCA lifted its interim dividend by +10% from 2.1 cps to 2.3 cps, representing a 58% pay-out ratio of Underlying NPAT for the period. Gearing lifted slightly to 31.8% and the NAV is up slightly from NZ$1.14 at FY19 to NZ$1.15.&nbsp;Operating cash flow was strong at NZ$57m, up +21%.
Realised development gains were NZ$18.7m, up on the NZ$9.9m in the pcp and our forecast of NZ$16.1m and boosted by very strong development margins of 36% compared to our forecast of 30%&nbsp;and 29.5% in the pcp. 85 units and care suites were sold in the half compared to 65 in the pcp.&nbsp;OCA’s development margin benefitted from high pricing in Auckland with average apartment pricing of NZ$1.2m at The Sands in Browns Bay and Meadowbank and low land pricing given the length of time it has owned both sites.&nbsp;Underlying care revenues were steady, as was occupancy at 94%, while Care EBITDA declined on higher operating costs.
In 1H20 OCA completed 90 care suites in Hamilton and 10 villas in Whitianga and started its 49 apartment extension at Eden in Auckland. It has indicated it is on track with its build guidance of 265 units and beds in FY20. There was no earnings guidance was provided.
Underlying care revenues were steady, as was occupancy, while Care EBITDA declined on higher operating costs.
1H20 result summary
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 141.8pt;">
Underlying earnings (excludes unrealised gains)
</td>
<td style="width: 44.8pt;">
1H19
</td>
<td style="width: 44.8pt;">
1H20
</td>
<td style="width: 44.8pt;">
Change
</td>
<td style="width: 44.8pt;">
Forbar
</td>
</tr>
<tr>
<td style="width: 141.8pt;">
Underlying revenue
</td>
<td style="width: 44.8pt;">
116.4
</td>
<td style="width: 44.8pt;">
124.8
</td>
<td style="width: 44.8pt;">
7%
</td>
<td style="width: 44.8pt;">
124.7
</td>
</tr>
<tr>
<td style="width: 141.8pt;">
Underlying EBITDA
</td>
<td style="width: 44.8pt;">
27.1
</td>
<td style="width: 44.8pt;">
34.1
</td>
<td style="width: 44.8pt;">
26%
</td>
<td style="width: 44.8pt;">
30.5
</td>
</tr>
<tr>
<td style="width: 141.8pt;">
Underlying profit
</td>
<td style="width: 44.8pt;">
20.9
</td>
<td style="width: 44.8pt;">
24.1
</td>
<td style="width: 44.8pt;">
15%
</td>
<td style="width: 44.8pt;">
22.9
</td>
</tr>
<tr>
<td style="width: 141.8pt;"></td>
<td style="width: 44.8pt;"></td>
<td style="width: 44.8pt;"></td>
<td style="width: 44.8pt;"></td>
<td style="width: 44.8pt;"></td>
</tr>
<tr>
<td style="width: 141.8pt;">
Operating cash flow
</td>
<td style="width: 44.8pt;">
47.1
</td>
<td style="width: 44.8pt;">
57.0
</td>
<td style="width: 44.8pt;">
21%
</td>
<td style="width: 44.8pt;"></td>
</tr>
<tr>
<td style="width: 141.8pt;">
EPS (cents)
</td>
<td style="width: 44.8pt;">
3.4
</td>
<td style="width: 44.8pt;">
3.9
</td>
<td style="width: 44.8pt;">
15%
</td>
<td style="width: 44.8pt;">
3.8
</td>
</tr>
<tr>
<td style="width: 141.8pt;">
1H DPS (cents)
</td>
<td style="width: 44.8pt;">
2.1
</td>
<td style="width: 44.8pt;">
2.3
</td>
<td style="width: 44.8pt;">
10%
</td>
<td style="width: 44.8pt;">
2.3
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis
Jeremy Simpson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
M: +64 21 995 998 | P: +64 9 368 0022 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Oceania Healthcare (OCA)
1H20 result – initial thoughts
OCA has reported a result slightly stronger in most areas than we were forecasting, in particular&nbsp;in terms of&nbsp;operating costs and margins.
1H20 underlying net profit after tax (NPAT) which strips out unrealised revaluation gains and deferred tax was NZ$24.1m, up +17.6%, slightly ahead our forecast of NZ$22.9m. OCA lifted its interim dividend by +10% from 2.1 cps to 2.3 cps, representing a 58% pay-out ratio of Underlying NPAT for the period. Gearing lifted slightly to 31.8% and the NAV is up slightly from NZ$1.14 at FY19 to NZ$1.15.&nbsp;Operating cash flow was strong at NZ$57m, up +21%.
Realised development gains were NZ$18.7m, up on the NZ$9.9m in the pcp and our forecast of NZ$16.1m and boosted by very strong development margins of 36% compared to our forecast of 30%&nbsp;and 29.5% in the pcp. 85 units and care suites were sold in the half compared to 65 in the pcp.&nbsp;OCA’s development margin benefitted from high pricing in Auckland with average apartment pricing of NZ$1.2m at The Sands in Browns Bay and Meadowbank and low land pricing given the length of time it has owned both sites.&nbsp;Underlying care revenues were steady, as was occupancy at 94%, while Care EBITDA declined on higher operating costs.
In 1H20 OCA completed 90 care suites in Hamilton and 10 villas in Whitianga and started its 49 apartment extension at Eden in Auckland. It has indicated it is on track with its build guidance of 265 units and beds in FY20. There was no earnings guidance was provided.
Underlying care revenues were steady, as was occupancy, while Care EBITDA declined on higher operating costs.
1H20 result summary




Underlying earnings (excludes unrealised gains)


1H19


1H20


Change


Forbar




Underlying revenue


116.4


124.8


7%


124.7




Underlying EBITDA


27.1


34.1


26%


30.5




Underlying profit


20.9


24.1


15%


22.9











Operating cash flow


47.1


57.0


21%





EPS (cents)


3.4


3.9


15%


3.8




1H DPS (cents)


2.1


2.3


10%


2.3




Source: Forsyth Barr analysis
Jeremy Simpson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
M: +64 21 995 998 | P: +64 9 368 0022 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Oceania Healthcare (OCA): 1H20 Result – Initial Thoughts

<h2>Oceania Healthcare</h2>
Coastal Cool
Oceania Healthcare (OCA) has a development programme that is building momentum with around five years of activity already consented and impressive recent completions highlighted by the coastally located, ‘The Sands’. OCA expects to deliver over 260 units and care suites in FY20, with deliveries across a geographically diverse range of locations. We have taken a more cautious view on near-term unit pricing, resales margins and operating margins which has reduced near-term earnings forecasts slightly. NEUTRAL.
What’s changed?
<ul>
<li>Earnings: Underlying EPS FY20E -5%, FY21E -3% and FY22E -2%</li>
<li>Target Price: Down from NZ$1.13 to NZ$1.08</li>
<li>Rating:&nbsp;NEUTRAL</li>
</ul>
Development momentum
OCA is starting to deliver on the development front with impressive new product in Auckland and Tauranga opened in FY19 and with north of 250 units and care suites delivered in FY19 and expected in FY20. There is some uncertainty with expected pricing and margins in FY20 and FY21 given the diverse geographic mix of the product being delivered. While pricing will be well below Auckland levels, margins will be helped given the bulk of the activity is on brownfield sites with low historic land cost. OCA’s care strategy to improve the quality of its portfolio is the correct one, but will continue to have a near-term dilutionary impact on earnings.
Steady FY19
The new sales gain (strong volume and margin uplift in 2H19) was the key driver of OCA holding up its underlying profit at NZ$50.2m, down -4% on the pcp and close to expectations. Care revenues were back slightly impacted by asset sales and beds taken offline for redevelopment, offset by a tick up in occupancy and premium accommodation charges. Higher operating costs also adversely impacted, and were the result of wage pressures and the cost of opening new care facilities that have yet to fill.
Forecasts and target price changes
We have taken a more conservative longer term view on pricing, margins, capex and growth generally. This has been offset by the adoption of our change in risk free rate (2.75% to 2%) and market risk premium (7.75% to 7.50%). The net result is a drop in our DCF valuation from NZ$1.07 to NZ$1.04 and our target price to NZ$1.08 from NZ$1.13. In terms of near-term underlying earnings, these have dropped by -5% in FY20, -3% in FY21 and -2% in FY22.&nbsp; The key drivers have been lower new unit and resales unit prices and lower resales margins, plus lower operating margins.&nbsp;
<div class="content-highlight">
Investment View
OCA has future growth prospects centred on brownfield expansion and land bank acquisitions. A strong ‘needs based’ portfolio gives OCA a defensive earnings profile, which should provide resilience when we see a downturn in the residential housing market. Compared to its peers it has an older and diverse portfolio mix which provides some challenges and opportunities. NEUTRAL.
</div>
&nbsp;Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Oceania Healthcare
Coastal Cool
Oceania Healthcare (OCA) has a development programme that is building momentum with around five years of activity already consented and impressive recent completions highlighted by the coastally located, ‘The Sands’. OCA expects to deliver over 260 units and care suites in FY20, with deliveries across a geographically diverse range of locations. We have taken a more cautious view on near-term unit pricing, resales margins and operating margins which has reduced near-term earnings forecasts slightly. NEUTRAL.
What’s changed?

Earnings: Underlying EPS FY20E -5%, FY21E -3% and FY22E -2%
Target Price: Down from NZ$1.13 to NZ$1.08
Rating:&nbsp;NEUTRAL

Development momentum
OCA is starting to deliver on the development front with impressive new product in Auckland and Tauranga opened in FY19 and with north of 250 units and care suites delivered in FY19 and expected in FY20. There is some uncertainty with expected pricing and margins in FY20 and FY21 given the diverse geographic mix of the product being delivered. While pricing will be well below Auckland levels, margins will be helped given the bulk of the activity is on brownfield sites with low historic land cost. OCA’s care strategy to improve the quality of its portfolio is the correct one, but will continue to have a near-term dilutionary impact on earnings.
Steady FY19
The new sales gain (strong volume and margin uplift in 2H19) was the key driver of OCA holding up its underlying profit at NZ$50.2m, down -4% on the pcp and close to expectations. Care revenues were back slightly impacted by asset sales and beds taken offline for redevelopment, offset by a tick up in occupancy and premium accommodation charges. Higher operating costs also adversely impacted, and were the result of wage pressures and the cost of opening new care facilities that have yet to fill.
Forecasts and target price changes
We have taken a more conservative longer term view on pricing, margins, capex and growth generally. This has been offset by the adoption of our change in risk free rate (2.75% to 2%) and market risk premium (7.75% to 7.50%). The net result is a drop in our DCF valuation from NZ$1.07 to NZ$1.04 and our target price to NZ$1.08 from NZ$1.13. In terms of near-term underlying earnings, these have dropped by -5% in FY20, -3% in FY21 and -2% in FY22.&nbsp; The key drivers have been lower new unit and resales unit prices and lower resales margins, plus lower operating margins.&nbsp;

Investment View
OCA has future growth prospects centred on brownfield expansion and land bank acquisitions. A strong ‘needs based’ portfolio gives OCA a defensive earnings profile, which should provide resilience when we see a downturn in the residential housing market. Compared to its peers it has an older and diverse portfolio mix which provides some challenges and opportunities. NEUTRAL.

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

New Zealand

Oceania Healthcare is New Zealand’s largest owners and operators of retirement villages.

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Oceania Healthcare (OCA NZ)

Oceania Healthcare: 1H20 Result — Rising Tide

Oceania Healthcare 1H20 Result — Rising Tide Oceania Healthcare (OCA) has reported a solid 1H20 result, slightly ahead of our expectations in most...

Forsyth Barr

Oceania Healthcare (OCA): 1H20 Result – Initial Thoughts

Oceania Healthcare (OCA) 1H20 result – initial thoughts OCA has reported a result slightly stronger in most areas than we were forecasting, in...

Forsyth Barr

Oceania Healthcare: Coastal Cool

Oceania Healthcare Coastal Cool Oceania Healthcare (OCA) has a development programme that is building momentum with around five years of activity...

Forsyth Barr

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