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>

FY19 Result — Care Full Progress
Metlifecare (MET) has delivered an FY19 result close to expectations, but dialled back recent and near-term development activity considerably to be prudent during a challenging time for its Auckland centric development pipeline. We have reduced near-term forecasts on the back of lower new sales and margins, and adopted a more conservative longer term outlook. Given the subdued environment and MET’s slower build rate, we don’t expect significant momentum until 2H21. However, the share price continues to price in more negativity than is warranted. OUTPERFORM.
What’s changed?
<ul>
<li>Earnings: FY20 -7%, FY21 -8% and FY22 -7%</li>
<li>Target Price: Down from NZ$5.88 to NZ$5.40</li>
<li>Rating:&nbsp;OUTPERFORM</li>
</ul>
Steady operating performance — demand remains intact
FY19 underlying profit was up +4% to NZ$90.5m compared with our forecast of NZ$91.5m. The 2H dividend was 7.25cps, up +7%. The result was driven by steady progress in most areas with resales gains the standout, with attractive pricing and margins. Underlying EBITDA of NZ$98m was in line with our forecast and up +7%. Demand indicators remain robust with village occupancy at 97% and an improving care business 96% full. Resales vacancy of uncontracted stock is around 3% and is consistent with prior periods.
Softer near-term development activity flagged
The FY19 unit build rate was well below expectations and guidance at 112 units versus our forecast of 148 units. MET has signalled a more cautious and prudent approach to its near-term development activity as it navigates a slower residential property market and elevated construction pricing for its Auckland centric pipeline. A build rate of only 80 units is expected now for FY20 (back from ~200) and it is guiding to deliver around 280 units and beds in FY21, in line with our forecast. It is also signalling a goal of a sustainable medium-term build rate of around 200 units and beds rather than the 300 units and beds it had been targeting.
Forecasts downgraded on lower sales &amp; margins
MET has signalled, in addition to its lower build rate, sharply lower development margins again. However, it indicated that new sales and resales volumes and resales margins are all tracking similar to the pcp, which is encouraging. We have taken a more cautious approach across most key drivers given the combination of MET missing its build targets for FY19 and FY20, and our more conservative outlook. A partial offset has been a lift in resales margins which remain very high given MET’s sector leading embedded value in its portfolio.&nbsp;
<div class="content-highlight">
Investment View
There is medium-term upside as the market gains confidence in MET’s ability to execute on developments, and if it can demonstrate its ability to capitalise on the growth potential in the sector and hold up investment property value in a slower market. With MET trading at 0.5x P/NTA ratio, the market is already factoring in significant negativity. We expect the NTA to continue to hold steady or lift slightly in the current environment with new stock delivery helping. Our rating is OUTPERFORM.
</div>
Jeremy Simpson, CFA
jeremy.simpson@forsythbarr.co.nz
+64 9 368 0022

Metlifecare

FY19 Result — Care Full Progress
Metlifecare (MET) has delivered an FY19 result close to expectations, but dialled back recent and near-term development activity considerably to be prudent during a challenging time for its Auckland centric development pipeline. We have reduced near-term forecasts on the back of lower new sales and margins, and adopted a more conservative longer term outlook. Given the subdued environment and MET’s slower build rate, we don’t expect significant momentum until 2H21. However, the share price continues to price in more negativity than is warranted. OUTPERFORM.
What’s changed?

Earnings: FY20 -7%, FY21 -8% and FY22 -7%
Target Price: Down from NZ$5.88 to NZ$5.40
Rating:&nbsp;OUTPERFORM

Steady operating performance — demand remains intact
FY19 underlying profit was up +4% to NZ$90.5m compared with our forecast of NZ$91.5m. The 2H dividend was 7.25cps, up +7%. The result was driven by steady progress in most areas with resales gains the standout, with attractive pricing and margins. Underlying EBITDA of NZ$98m was in line with our forecast and up +7%. Demand indicators remain robust with village occupancy at 97% and an improving care business 96% full. Resales vacancy of uncontracted stock is around 3% and is consistent with prior periods.
Softer near-term development activity flagged
The FY19 unit build rate was well below expectations and guidance at 112 units versus our forecast of 148 units. MET has signalled a more cautious and prudent approach to its near-term development activity as it navigates a slower residential property market and elevated construction pricing for its Auckland centric pipeline. A build rate of only 80 units is expected now for FY20 (back from ~200) and it is guiding to deliver around 280 units and beds in FY21, in line with our forecast. It is also signalling a goal of a sustainable medium-term build rate of around 200 units and beds rather than the 300 units and beds it had been targeting.
Forecasts downgraded on lower sales &amp; margins
MET has signalled, in addition to its lower build rate, sharply lower development margins again. However, it indicated that new sales and resales volumes and resales margins are all tracking similar to the pcp, which is encouraging. We have taken a more cautious approach across most key drivers given the combination of MET missing its build targets for FY19 and FY20, and our more conservative outlook. A partial offset has been a lift in resales margins which remain very high given MET’s sector leading embedded value in its portfolio.&nbsp;

Investment View
There is medium-term upside as the market gains confidence in MET’s ability to execute on developments, and if it can demonstrate its ability to capitalise on the growth potential in the sector and hold up investment property value in a slower market. With MET trading at 0.5x P/NTA ratio, the market is already factoring in significant negativity. We expect the NTA to continue to hold steady or lift slightly in the current environment with new stock delivery helping. Our rating is OUTPERFORM.

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

Metlifecare: FY19 Result — Care Full Progress

Metlifecare Ltd

Metlifecare: FY19 Result — Care Full Progress