New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Metlifecare</h2>
Company Update
NEUTRAL
As we have done with the other aged care operators we have materially reduced near-term earnings expectations for Metlifecare (MET) based on a scenario of a very soft operating environment in terms of sales and development activity over the next six months, followed by a recovery period of 18–24 months. There are significant operating uncertainties, however, MET is significantly better placed than last cycle and has sector low gearing by a considerable margin. NEUTRAL.
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Earnings reviewed​​​​​​​
As is the case with the wider sector, there is considerable uncertainty around near-term earnings levels due to a stalling in sales activity. We have adopted a scenario that will hopefully end up being conservative that assumes little new and resales and development activity for six months, and then a recovery over the next 18–24 months to get back to pre COVID-19 levels of profitability. This has pulled back MET's earnings significantly and our target price has dropped by -14% to NZ$6.00. The listed operators are well placed in terms of locking down villages, protecting and quarantining residents, while also safely providing services to residents and a sense of community. This will be helpful for sentiment towards the sector once things normalise. ​​​​​​​
Retain NEUTRAL rating
While MET is trading at a large discount to NTA we maintain our NEUTRAL rating. MET's lower needs based level remains an area of risk for market sentiment and with a heavy Auckland presence it is seen as more susceptible to a weak housing market. However, MET's new villages have a stronger needs based component. MET has recently added care to a number of villages in strategic locations and it has had a strong focus on arranging the delivery of lower level care into its villages without an aged care facility. While there are considerable uncertainties operationally with a economy and housing market, MET is much better prepared than last cycle. It has substantial embedded value in the portfolio, being the difference between prevailing unit prices and the price the existing resident paid. Capital and development management is better with MET getting caught out last cycle by a large development and over geared. MET's NTA reduced significantly last cycle but not due to falling village valuations but because it did two discounted equity issues to restore its balance sheet.&nbsp; This looks unlikely this cycle and we also expect retirement village valuations to hold up like they did last cycle. MET's NTA will be helped by its ability to quickly restart its development programme.​​​​​​​​​​​​​​
Takeover update
The MET board is still of the view that&nbsp;APVG&nbsp;has no lawful basis to terminate the&nbsp;SIA&nbsp;and it&nbsp;has appointed a QC to help fight its case.&nbsp;MET is proceeding with sending out the&nbsp;SIA&nbsp;materials to shareholders in late April for a meeting in May.&nbsp;MET expects FY20 underlying profit to be in the range of NZ$83m to NZ$90m based on current trading.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Metlifecare
Company Update
NEUTRAL
As we have done with the other aged care operators we have materially reduced near-term earnings expectations for Metlifecare (MET) based on a scenario of a very soft operating environment in terms of sales and development activity over the next six months, followed by a recovery period of 18–24 months. There are significant operating uncertainties, however, MET is significantly better placed than last cycle and has sector low gearing by a considerable margin. NEUTRAL.

Earnings reviewed​​​​​​​
As is the case with the wider sector, there is considerable uncertainty around near-term earnings levels due to a stalling in sales activity. We have adopted a scenario that will hopefully end up being conservative that assumes little new and resales and development activity for six months, and then a recovery over the next 18–24 months to get back to pre COVID-19 levels of profitability. This has pulled back MET's earnings significantly and our target price has dropped by -14% to NZ$6.00. The listed operators are well placed in terms of locking down villages, protecting and quarantining residents, while also safely providing services to residents and a sense of community. This will be helpful for sentiment towards the sector once things normalise. ​​​​​​​
Retain NEUTRAL rating
While MET is trading at a large discount to NTA we maintain our NEUTRAL rating. MET's lower needs based level remains an area of risk for market sentiment and with a heavy Auckland presence it is seen as more susceptible to a weak housing market. However, MET's new villages have a stronger needs based component. MET has recently added care to a number of villages in strategic locations and it has had a strong focus on arranging the delivery of lower level care into its villages without an aged care facility. While there are considerable uncertainties operationally with a economy and housing market, MET is much better prepared than last cycle. It has substantial embedded value in the portfolio, being the difference between prevailing unit prices and the price the existing resident paid. Capital and development management is better with MET getting caught out last cycle by a large development and over geared. MET's NTA reduced significantly last cycle but not due to falling village valuations but because it did two discounted equity issues to restore its balance sheet.&nbsp; This looks unlikely this cycle and we also expect retirement village valuations to hold up like they did last cycle. MET's NTA will be helped by its ability to quickly restart its development programme.​​​​​​​​​​​​​​
Takeover update
The MET board is still of the view that&nbsp;APVG&nbsp;has no lawful basis to terminate the&nbsp;SIA&nbsp;and it&nbsp;has appointed a QC to help fight its case.&nbsp;MET is proceeding with sending out the&nbsp;SIA&nbsp;materials to shareholders in late April for a meeting in May.&nbsp;MET expects FY20 underlying profit to be in the range of NZ$83m to NZ$90m based on current trading.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Metlifecare Ltd

Metlifecare: Company Update