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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Oceania Healthcare (OCA) 1H21 Result – Initial Impressions</h2>
Oceania Healthcare (OCA) reported 1H21 underlying earnings of NZ$23.4m above our expectations (FB NZ$20.6m). Annuity EBITDA came in at NZ$18.4m, up 20% vs 1H20, and 15% ahead of our estimates. The strength in the results were broad based, with strong re-sales margins, 50% growth in DMF and good cost control. We were particularly encouraged by the strong cash generation, which resulted in an NZ$11m reduction in net debt, a first for several years in the aged care sector.
<h3>Other key points</h3>
<ul>
<li>Construction activity in-line: As previously guided, OCA completed its 61 care suites and 28 apartments at the Green Gables in Nelson in 1H21. OCA also maintained its full year development target of 217 units and care suites with 128 units &amp; care suites at The Bellevue and The BayView expected to be completed in 2H21.</li>
<li>Cash flow strong: Operating cash flow was very strong, up NZ$18m vs last year which, in combination with lower capex resulted in NZ$15m positive FCF and a NZ$11m reduction in net debt from the full year.</li>
<li>NAV NZ$1.24 per share, up from NZ$1.10 at the full year.</li>
<li>DPS 1.3 cps, down 38% vs last year and below our expectations of 2.3cps, however, no change in guided dividend policy so we expect there to be a catch up at the full year.</li>
</ul>
Investor briefing at 10:30am NZT. Access via webcast 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=1611360504242000&amp;usg=AFQjCNHRH0Syk3TF0omn2ocJwISGWOedzg" rel="noopener">https://globalmeet.webcasts.com/starthere.jsp?ei=1413110&amp;tp_key=335104b087</a>
1H21 result summary
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 179.8pt;"></td>
<td style="width: 42.8pt;">
1H20
</td>
<td style="width: 42.8pt;">
1H21
</td>
<td style="width: 53.55pt;">
% change
</td>
<td style="width: 58.05pt;">
1H21E FB
</td>
<td style="width: 62.45pt;">
Actual vs FB
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Care fees
</td>
<td style="width: 42.8pt;">
78.0
</td>
<td style="width: 42.8pt;">
81.5
</td>
<td style="width: 53.55pt;">
4%
</td>
<td style="width: 58.05pt;">
80.7
</td>
<td style="width: 62.45pt;">
1%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Care DMF
</td>
<td style="width: 42.8pt;">
3.5
</td>
<td style="width: 42.8pt;">
5.4
</td>
<td style="width: 53.55pt;">
54%
</td>
<td style="width: 58.05pt;">
5.6
</td>
<td style="width: 62.45pt;">
-4%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Village DMF
</td>
<td style="width: 42.8pt;">
10.3
</td>
<td style="width: 42.8pt;">
12.9
</td>
<td style="width: 53.55pt;">
25%
</td>
<td style="width: 58.05pt;">
11.5
</td>
<td style="width: 62.45pt;">
12%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Village fees
</td>
<td style="width: 42.8pt;">
5.4
</td>
<td style="width: 42.8pt;">
4.4
</td>
<td style="width: 53.55pt;">
-18%
</td>
<td style="width: 58.05pt;">
5.0
</td>
<td style="width: 62.45pt;">
-12%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Resale gains
</td>
<td style="width: 42.8pt;">
8.2
</td>
<td style="width: 42.8pt;">
10.4
</td>
<td style="width: 53.55pt;">
27%
</td>
<td style="width: 58.05pt;">
6.9
</td>
<td style="width: 62.45pt;">
51%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
New sale gains
</td>
<td style="width: 42.8pt;">
18.7
</td>
<td style="width: 42.8pt;">
17.0
</td>
<td style="width: 53.55pt;">
-9%
</td>
<td style="width: 58.05pt;">
16.4
</td>
<td style="width: 62.45pt;">
4%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Other
</td>
<td style="width: 42.8pt;">
0.6
</td>
<td style="width: 42.8pt;">
0.4
</td>
<td style="width: 53.55pt;">
-34%
</td>
<td style="width: 58.05pt;">
0.5
</td>
<td style="width: 62.45pt;">
-15%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Total revenue
</td>
<td style="width: 42.8pt;">
124.7
</td>
<td style="width: 42.8pt;">
132.0
</td>
<td style="width: 53.55pt;">
6%
</td>
<td style="width: 58.05pt;">
126.7
</td>
<td style="width: 62.45pt;">
4%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Total costs
</td>
<td style="width: 42.8pt;">
90.7
</td>
<td style="width: 42.8pt;">
96.6
</td>
<td style="width: 53.55pt;">
6%
</td>
<td style="width: 58.05pt;">
94.3
</td>
<td style="width: 62.45pt;">
2%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
EBITDA
</td>
<td style="width: 42.8pt;">
34.0
</td>
<td style="width: 42.8pt;">
35.5
</td>
<td style="width: 53.55pt;">
4%
</td>
<td style="width: 58.05pt;">
32.3
</td>
<td style="width: 62.45pt;">
10%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Depreciation &amp; amortisation
</td>
<td style="width: 42.8pt;">
7.1
</td>
<td style="width: 42.8pt;">
8.1
</td>
<td style="width: 53.55pt;">
13%
</td>
<td style="width: 58.05pt;">
7.8
</td>
<td style="width: 62.45pt;">
3%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
EBIT
</td>
<td style="width: 42.8pt;">
26.9
</td>
<td style="width: 42.8pt;">
27.4
</td>
<td style="width: 53.55pt;">
2%
</td>
<td style="width: 58.05pt;">
24.5
</td>
<td style="width: 62.45pt;">
12%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Net interest
</td>
<td style="width: 42.8pt;">
2.8
</td>
<td style="width: 42.8pt;">
4.0
</td>
<td style="width: 53.55pt;">
42%
</td>
<td style="width: 58.05pt;">
3.9
</td>
<td style="width: 62.45pt;">
4%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Underlying profit
</td>
<td style="width: 42.8pt;">
24.1
</td>
<td style="width: 42.8pt;">
23.4
</td>
<td style="width: 53.55pt;">
-3%
</td>
<td style="width: 58.05pt;">
20.6
</td>
<td style="width: 62.45pt;">
13%
</td>
</tr>
<tr>
<td style="width: 179.8pt;"></td>
<td style="width: 42.8pt;"></td>
<td style="width: 42.8pt;"></td>
<td style="width: 53.55pt;">
&nbsp;
</td>
<td style="width: 58.05pt;">
&nbsp;
</td>
<td style="width: 62.45pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Annuity EBITDA
</td>
<td style="width: 42.8pt;">
15.3
</td>
<td style="width: 42.8pt;">
18.4
</td>
<td style="width: 53.55pt;">
20%
</td>
<td style="width: 58.05pt;">
15.9
</td>
<td style="width: 62.45pt;">
16%
</td>
</tr>
<tr>
<td style="width: 179.8pt;"></td>
<td style="width: 42.8pt;"></td>
<td style="width: 42.8pt;"></td>
<td style="width: 53.55pt;">
&nbsp;
</td>
<td style="width: 58.05pt;">
&nbsp;
</td>
<td style="width: 62.45pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Operating cash flow
</td>
<td style="width: 42.8pt;">
57.0
</td>
<td style="width: 42.8pt;">
74.6
</td>
<td style="width: 53.55pt;">
31%
</td>
<td style="width: 58.05pt;">
68.1
</td>
<td style="width: 62.45pt;">
10%
</td>
</tr>
<tr>
<td style="width: 179.8pt;"></td>
<td style="width: 42.8pt;"></td>
<td style="width: 42.8pt;"></td>
<td style="width: 53.55pt;">
&nbsp;
</td>
<td style="width: 58.05pt;">
&nbsp;
</td>
<td style="width: 62.45pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
EPS (cents)
</td>
<td style="width: 42.8pt;">
3.9
</td>
<td style="width: 42.8pt;">
4.0
</td>
<td style="width: 53.55pt;">
1%
</td>
<td style="width: 58.05pt;">
3.3
</td>
<td style="width: 62.45pt;">
20%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
DPS (cents)
</td>
<td style="width: 42.8pt;">
2.1
</td>
<td style="width: 42.8pt;">
1.3
</td>
<td style="width: 53.55pt;">
-38%
</td>
<td style="width: 58.05pt;">
2.3
</td>
<td style="width: 62.45pt;">
-42%
</td>
</tr>
<tr>
<td style="width: 179.8pt;"></td>
<td style="width: 42.8pt;"></td>
<td style="width: 42.8pt;"></td>
<td style="width: 53.55pt;">
&nbsp;
</td>
<td style="width: 58.05pt;">
&nbsp;
</td>
<td style="width: 62.45pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Sales - new units
</td>
<td style="width: 42.8pt;">
84
</td>
<td style="width: 42.8pt;">
145
</td>
<td style="width: 53.55pt;">
73%
</td>
<td style="width: 58.05pt;">
110
</td>
<td style="width: 62.45pt;">
32%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
New sales margin (%)
</td>
<td style="width: 42.8pt;">
36%
</td>
<td style="width: 42.8pt;">
25%
</td>
<td style="width: 53.55pt;">
-12%
</td>
<td style="width: 58.05pt;">
26%
</td>
<td style="width: 62.45pt;">
-1%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Sales - resold units
</td>
<td style="width: 42.8pt;">
102
</td>
<td style="width: 42.8pt;">
123
</td>
<td style="width: 53.55pt;">
21%
</td>
<td style="width: 58.05pt;">
110
</td>
<td style="width: 62.45pt;">
12%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Resales margin (%)
</td>
<td style="width: 42.8pt;">
23%
</td>
<td style="width: 42.8pt;">
21%
</td>
<td style="width: 53.55pt;">
-2%
</td>
<td style="width: 58.05pt;">
17%
</td>
<td style="width: 62.45pt;">
4%
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, Company reports
Aaron Ibbotson &nbsp;CFA Director / Senior Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1689530505459515896&amp;th=17726b0b0f19c1f8&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9pUPeJReWH1PMoM88ylA72hhzO9DKaqWFf6tziAUqnHqBV--BkTtVu9GWWr2VPviE-9AqQLXfuyo3Kx4b4eYYbkbX-s9p0FCfrDCAH8agEA3eAzBrMQTur7Fg&amp;disp=emb" class="editor-image img-responsive"></figure>
 M: +64 21 470 377 |P: +64 9 368 0024 | TF: 0800 367 227 Level 23, Lumley Centre, 88 Shortland Street, Auckland

Oceania Healthcare (OCA) 1H21 Result – Initial Impressions
Oceania Healthcare (OCA) reported 1H21 underlying earnings of NZ$23.4m above our expectations (FB NZ$20.6m). Annuity EBITDA came in at NZ$18.4m, up 20% vs 1H20, and 15% ahead of our estimates. The strength in the results were broad based, with strong re-sales margins, 50% growth in DMF and good cost control. We were particularly encouraged by the strong cash generation, which resulted in an NZ$11m reduction in net debt, a first for several years in the aged care sector.
Other key points

Construction activity in-line: As previously guided, OCA completed its 61 care suites and 28 apartments at the Green Gables in Nelson in 1H21. OCA also maintained its full year development target of 217 units and care suites with 128 units &amp; care suites at The Bellevue and The BayView expected to be completed in 2H21.
Cash flow strong: Operating cash flow was very strong, up NZ$18m vs last year which, in combination with lower capex resulted in NZ$15m positive FCF and a NZ$11m reduction in net debt from the full year.
NAV NZ$1.24 per share, up from NZ$1.10 at the full year.
DPS 1.3 cps, down 38% vs last year and below our expectations of 2.3cps, however, no change in guided dividend policy so we expect there to be a catch up at the full year.

Investor briefing at 10:30am NZT. Access via webcast at&nbsp;https://globalmeet.webcasts.com/starthere.jsp?ei=1413110&amp;tp_key=335104b087
1H21 result summary





1H20


1H21


% change


1H21E FB


Actual vs FB




Care fees


78.0


81.5


4%


80.7


1%




Care DMF


3.5


5.4


54%


5.6


-4%




Village DMF


10.3


12.9


25%


11.5


12%




Village fees


5.4


4.4


-18%


5.0


-12%




Resale gains


8.2


10.4


27%


6.9


51%




New sale gains


18.7


17.0


-9%


16.4


4%




Other


0.6


0.4


-34%


0.5


-15%




Total revenue


124.7


132.0


6%


126.7


4%




Total costs


90.7


96.6


6%


94.3


2%




EBITDA


34.0


35.5


4%


32.3


10%




Depreciation &amp; amortisation


7.1


8.1


13%


7.8


3%




EBIT


26.9


27.4


2%


24.5


12%




Net interest


2.8


4.0


42%


3.9


4%




Underlying profit


24.1


23.4


-3%


20.6


13%







&nbsp;


&nbsp;


&nbsp;




Annuity EBITDA


15.3


18.4


20%


15.9


16%







&nbsp;


&nbsp;


&nbsp;




Operating cash flow


57.0


74.6


31%


68.1


10%







&nbsp;


&nbsp;


&nbsp;




EPS (cents)


3.9


4.0


1%


3.3


20%




DPS (cents)


2.1


1.3


-38%


2.3


-42%







&nbsp;


&nbsp;


&nbsp;




Sales - new units


84


145


73%


110


32%




New sales margin (%)


36%


25%


-12%


26%


-1%




Sales - resold units


102


123


21%


110


12%




Resales margin (%)


23%


21%


-2%


17%


4%




Source: Forsyth Barr analysis, Company reports
Aaron Ibbotson &nbsp;CFA Director / Senior Analyst, Equities

 M: +64 21 470 377 |P: +64 9 368 0024 | TF: 0800 367 227 Level 23, Lumley Centre, 88 Shortland Street, Auckland

Oceania Healthcare (OCA): 1H21 Result – Initial Impressions