New Zealand Professional Investment Services Firm

Forsyth Barr

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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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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<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;
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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.
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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