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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)</h2>
FY20 Result – Initial Impressions
Oceania Healthcare (OCA) has produced an FY20 result slightly below expectations with underlying profit of NZ$42.9m, -16%% on pcp (versus Forsyth Barr of NZ$46.7m). The miss versus Forsyth Barr relates primarily to finance cost and depreciation, Underlying EBITDA came in in-line with Forsyth Barr estimates (NZ$ 63.5m vs NZ$ 61.9m). Within the operational results Care Fees (NZ$156.4m versus Forsyth Barr of NZ$168.9m) came in below while new sales margin and number of units was ahead our forecasts. We are focused on three key observations; (1) NTA per share declined by 4cps to 110cps, this compares to ARV and RYM (March year-end) which both reported increase in NTA. May year end may have been a factor resulting in particularly conservative valuer assumptions, but we will look for more information from the company. (2) Underlying care EBITDA per bed continue to decline (-17% PCP) as increased DMF is not fully offsetting negative impact from costs outgrowing care fees; and (3) new sales of Care Suites appear to be going strong (114 vs 57+100% pcp) with high development margins, which bodes well for the future path of re-positioning the company.
Key details:
<ul>
<li>COVID-19: OCA’s development programme was slowed in mid-March and then halted during level 4 lockdown with construction at nine sites recommencing at alert level 3. Pleasingly, once restrictions were lifted OCA experienced a strong increase in inquiries and have taken significantly higher applications over late May and June than recorded last year likely reflecting the improved consumer sentiment post lockdowns and mirrors the comments provided from both Arvida and Summerset in recent weeks.</li>
<li>Guidance: OCA have provided no formal guidance for FY21, however, have provided some insight into build rate for FY21. OCA anticipate the completion of 217 units which is broadly consistent with revised build rate guidance post-covid of 200 units but still remains depressed on pre-covid medium term build rate guidance of 250 to 300 units</li>
</ul>
Conference call details:
OCA will hold its FY20 conference call at 10:30am NZ time. Details are; New Zealand: 0800 423 972, Australia: 1 800 590 693 and Passcode: 742624 or access via webcast at <a href="https://globalmeet.webcasts.com/starthere.jsp?ei=1332504&amp;tp_key=dc7b3b8293" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://globalmeet.webcasts.com/starthere.jsp?ei%3D1332504%26tp_key%3Ddc7b3b8293&amp;source=gmail&amp;ust=1595549861101000&amp;usg=AFQjCNGEk5S21yhNcC1b6GX7pjOLKLwDfA" rel="noopener">https://globalmeet.webcasts.com/starthere.jsp?ei=1332504&amp;tp_key=dc7b3b8293</a>
Figure 1: key sales activity
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 179.8pt;">
12 months ending 31 May
</td>
<td style="width: 42.8pt;">
FY19
</td>
<td style="width: 42.8pt;">
FY20
</td>
<td style="width: 42.8pt;">
Change
</td>
<td style="width: 68.8pt;">
Forbar
</td>
<td style="width: 50.8pt;">
Actual vs FB
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Sales - new units
</td>
<td style="width: 42.8pt;">
133
</td>
<td style="width: 42.8pt;">
189
</td>
<td style="width: 42.8pt;">
42%
</td>
<td style="width: 68.8pt;">
130
</td>
<td style="width: 50.8pt;">
45%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Average unit price - new sales (NZ$000's)
</td>
<td style="width: 42.8pt;">
609
</td>
<td style="width: 42.8pt;">
542
</td>
<td style="width: 42.8pt;">
-11%
</td>
<td style="width: 68.8pt;">
706
</td>
<td style="width: 50.8pt;">
-23%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
New sales margin (%)
</td>
<td style="width: 42.8pt;">
36%
</td>
<td style="width: 42.8pt;">
33%
</td>
<td style="width: 42.8pt;">
-8%
</td>
<td style="width: 68.8pt;">
30%
</td>
<td style="width: 50.8pt;">
10%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Sales - resold units
</td>
<td style="width: 42.8pt;">
177
</td>
<td style="width: 42.8pt;">
166
</td>
<td style="width: 42.8pt;">
-6%
</td>
<td style="width: 68.8pt;">
182
</td>
<td style="width: 50.8pt;">
-9%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Average unit price - resales (NZ$000's)
</td>
<td style="width: 42.8pt;">
348
</td>
<td style="width: 42.8pt;">
354
</td>
<td style="width: 42.8pt;">
2%
</td>
<td style="width: 68.8pt;">
341
</td>
<td style="width: 50.8pt;">
4%
</td>
</tr>
<tr>
<td style="width: 179.8pt;">
Resales margin (%)
</td>
<td style="width: 42.8pt;">
25%
</td>
<td style="width: 42.8pt;">
20%
</td>
<td style="width: 42.8pt;">
-20%
</td>
<td style="width: 68.8pt;">
21%
</td>
<td style="width: 50.8pt;">
-7%
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis
Aaron Ibbotson &nbsp;CFA Director / Senior Analyst, Equities <a href="https://www.forsythbarr.co.nz/" target="_blank" rel="noopener">Forsyth Barr Limited</a>
P: +64 9 368 0024 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Oceania Healthcare (OCA)
FY20 Result – Initial Impressions
Oceania Healthcare (OCA) has produced an FY20 result slightly below expectations with underlying profit of NZ$42.9m, -16%% on pcp (versus Forsyth Barr of NZ$46.7m). The miss versus Forsyth Barr relates primarily to finance cost and depreciation, Underlying EBITDA came in in-line with Forsyth Barr estimates (NZ$ 63.5m vs NZ$ 61.9m). Within the operational results Care Fees (NZ$156.4m versus Forsyth Barr of NZ$168.9m) came in below while new sales margin and number of units was ahead our forecasts. We are focused on three key observations; (1) NTA per share declined by 4cps to 110cps, this compares to ARV and RYM (March year-end) which both reported increase in NTA. May year end may have been a factor resulting in particularly conservative valuer assumptions, but we will look for more information from the company. (2) Underlying care EBITDA per bed continue to decline (-17% PCP) as increased DMF is not fully offsetting negative impact from costs outgrowing care fees; and (3) new sales of Care Suites appear to be going strong (114 vs 57+100% pcp) with high development margins, which bodes well for the future path of re-positioning the company.
Key details:

COVID-19: OCA’s development programme was slowed in mid-March and then halted during level 4 lockdown with construction at nine sites recommencing at alert level 3. Pleasingly, once restrictions were lifted OCA experienced a strong increase in inquiries and have taken significantly higher applications over late May and June than recorded last year likely reflecting the improved consumer sentiment post lockdowns and mirrors the comments provided from both Arvida and Summerset in recent weeks.
Guidance: OCA have provided no formal guidance for FY21, however, have provided some insight into build rate for FY21. OCA anticipate the completion of 217 units which is broadly consistent with revised build rate guidance post-covid of 200 units but still remains depressed on pre-covid medium term build rate guidance of 250 to 300 units

Conference call details:
OCA will hold its FY20 conference call at 10:30am NZ time. Details are; New Zealand: 0800 423 972, Australia: 1 800 590 693 and Passcode: 742624 or access via webcast at https://globalmeet.webcasts.com/starthere.jsp?ei=1332504&amp;tp_key=dc7b3b8293
Figure 1: key sales activity




12 months ending 31 May


FY19


FY20


Change


Forbar


Actual vs FB




Sales - new units


133


189


42%


130


45%




Average unit price - new sales (NZ$000's)


609


542


-11%


706


-23%




New sales margin (%)


36%


33%


-8%


30%


10%




Sales - resold units


177


166


-6%


182


-9%




Average unit price - resales (NZ$000's)


348


354


2%


341


4%




Resales margin (%)


25%


20%


-20%


21%


-7%




Source: Forsyth Barr analysis
Aaron Ibbotson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
P: +64 9 368 0024 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Oceania Healthcare (OCA):  FY20 Result – Initial Impressions