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>Oceania Healthcare<br>1H21 Preview&nbsp;— Inflection?&nbsp;</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>After a multi-year period of portfolio transformation (that is still ongoing) characterised by falling annuity earnings, we believe that FY21 will mark an inflection point for OCA's earnings. We expect to see the first signs of this when OCA reports its 1H21 result on Friday, 22 January. We will focus on three key points: (1) sales activity update; commentary from OCA has been quiet in recent months and competitor commentary mixed but we expect solid sales activity in 1H21 following a strong Q1, (2) an update on care suite demand; care suites are the core driver behind its portfolio transformation and we expect demand to remain strong, and (3) an annuity earnings uptick; OCA's annuity EBITDA has declined since FY18 given its portfolio mix shift — we forecast a +4% uplift in 1H21 as OCA begins to capitalise on recent portfolio changes.</p>
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<h3>Key points of interest</h3>
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<li><strong>Update on recent trading</strong>: Once sales restrictions eased in Alert Level two, OCA recorded strong sales levels in Q1 (total sales +26% vs. pcp) likely driven by new sales at both Meadowbank and The Sands. We assume Q2 has remained strong but forecast a slowdown from the pent up demand post lockdowns.&nbsp;</li>
<li><strong>Uptake of care suites:</strong> We view the product as a core driver of future annuity earnings growth given the ability to quickly recycle DMF (deferred management fee) and resales gains. Demand to date has been strong and we expect this to continue.&nbsp;&nbsp;</li>
<li><strong>Annuity earnings growth</strong>: Recent portfolio transformation has shifted OCA's earnings mix towards new sales gains driving down annuity EBITDA.&nbsp; We forecast a small annuity earnings uplift as OCA's premium care portfolio begins to slowly mature.</li>
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<h3>Investor briefing&nbsp;— 10:30am NZ time on Friday, 22 January</h3>
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<p>Access via&nbsp;webcast&nbsp;at;&nbsp;<a href="https://globalmeet.webcasts.com/starthere.jsp?ei=1413110&amp;tp_key=335104b087" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://globalmeet.webcasts.com/starthere.jsp?ei%3D1413110%26tp_key%3D335104b087&amp;source=gmail&amp;ust=1611185781808000&amp;usg=AFQjCNES9Ifxl653BjzGtFmoU5HJclJeEQ" rel="noopener">https://globalmeet.<wbr>webcasts.com/starthere.jsp?ei=<wbr>1413110&amp;tp_key=335104b087</a></p>
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<div><strong>Aaron Ibbotson CFA</strong></div>
<div><a href="mailto:aaron.ibbotson@forsythbarr.co.nz" target="_blank" rel="noopener">aaron.ibbotson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 9 368 0024</div>
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<div><strong>Matt Montgomerie</strong></div>
<div><a href="mailto:matt.montgomerie@forsythbarr.co.nz" target="_blank" rel="noopener">matt.montgomerie@forsythbarr.<wbr>co.nz</a></div>
<div>+64 9 368 0124</div>
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Oceania Healthcare 1H21 Preview&nbsp;— Inflection?&nbsp;

OUTPERFORM
After a multi-year period of portfolio transformation (that is still ongoing) characterised by falling annuity earnings, we believe that FY21 will mark an inflection point for OCA's earnings. We expect to see the first signs of this when OCA reports its 1H21 result on Friday, 22 January. We will focus on three key points: (1) sales activity update; commentary from OCA has been quiet in recent months and competitor commentary mixed but we expect solid sales activity in 1H21 following a strong Q1, (2) an update on care suite demand; care suites are the core driver behind its portfolio transformation and we expect demand to remain strong, and (3) an annuity earnings uptick; OCA's annuity EBITDA has declined since FY18 given its portfolio mix shift — we forecast a +4% uplift in 1H21 as OCA begins to capitalise on recent portfolio changes.


Key points of interest



Update on recent trading: Once sales restrictions eased in Alert Level two, OCA recorded strong sales levels in Q1 (total sales +26% vs. pcp) likely driven by new sales at both Meadowbank and The Sands. We assume Q2 has remained strong but forecast a slowdown from the pent up demand post lockdowns.&nbsp;
Uptake of care suites: We view the product as a core driver of future annuity earnings growth given the ability to quickly recycle DMF (deferred management fee) and resales gains. Demand to date has been strong and we expect this to continue.&nbsp;&nbsp;
Annuity earnings growth: Recent portfolio transformation has shifted OCA's earnings mix towards new sales gains driving down annuity EBITDA.&nbsp; We forecast a small annuity earnings uplift as OCA's premium care portfolio begins to slowly mature.



Investor briefing&nbsp;— 10:30am NZ time on Friday, 22 January


Access via&nbsp;webcast&nbsp;at;&nbsp;https://globalmeet.webcasts.com/starthere.jsp?ei=1413110&amp;tp_key=335104b087



Aaron Ibbotson CFA
aaron.ibbotson@forsythbarr.co.nz
+64 9 368 0024





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



Oceania Healthcare: 1H21 Preview — Inflection?