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>V Shaped Recovery; Upgrade to OUTPERFORM</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>We upgrade Oceania&nbsp;Healthcare&nbsp;(OCA)&nbsp;to OUTPERFORM&nbsp;with a target price of NZ$1.65&nbsp;(from NZ$1.10). We believe&nbsp;OCA's&nbsp;higher average charges and focus on care suites over traditional care is a key beneficiary of&nbsp;the current buoyant market environment for residential homes and high demand for care.&nbsp;We believe OCA to be at an inflection point with&nbsp;its transition from traditional care operator towards a premium operator charging through deferred management fees (DMF) and re-sale gains. We expect OCA&nbsp;to almost double annuity earnings over the coming three years and deliver the highest cash recovery of new&nbsp;capex&nbsp;in the sector. Should OCA deliver on our expectations and the buoyant market continue, we see substantial further upside&nbsp;medium term.&nbsp;</p>
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<h3>The worst is behind us, time to look ahead</h3>
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<p>OCA has had, by some margin, the worst development of all the aged care operators over the last four years; annuity earnings have declined by almost 30% and only 50% of capex has been recovered in the form of new sales. This has been a deliberate strategy by OCA to de-commission one third of its existing care beds to replace them with (fewer) care suites and ILUs. This has, in our view, been a high risk, high reward, strategy that looks to be paying off. The care suite model substantially improves capex recovery, cash conversion of annuity earnings and DMF. The risk primarily relates to demand; will the product work? We are of the view that the "use case" for care suites is strong, however, it is a relatively untested product in New Zealand. The early signs are positive, but OCA is, in our view, a high risk, high reward stock.&nbsp;</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 V Shaped Recovery; Upgrade to OUTPERFORM

OUTPERFORM
We upgrade Oceania&nbsp;Healthcare&nbsp;(OCA)&nbsp;to OUTPERFORM&nbsp;with a target price of NZ$1.65&nbsp;(from NZ$1.10). We believe&nbsp;OCA's&nbsp;higher average charges and focus on care suites over traditional care is a key beneficiary of&nbsp;the current buoyant market environment for residential homes and high demand for care.&nbsp;We believe OCA to be at an inflection point with&nbsp;its transition from traditional care operator towards a premium operator charging through deferred management fees (DMF) and re-sale gains. We expect OCA&nbsp;to almost double annuity earnings over the coming three years and deliver the highest cash recovery of new&nbsp;capex&nbsp;in the sector. Should OCA deliver on our expectations and the buoyant market continue, we see substantial further upside&nbsp;medium term.&nbsp;


The worst is behind us, time to look ahead


OCA has had, by some margin, the worst development of all the aged care operators over the last four years; annuity earnings have declined by almost 30% and only 50% of capex has been recovered in the form of new sales. This has been a deliberate strategy by OCA to de-commission one third of its existing care beds to replace them with (fewer) care suites and ILUs. This has, in our view, been a high risk, high reward, strategy that looks to be paying off. The care suite model substantially improves capex recovery, cash conversion of annuity earnings and DMF. The risk primarily relates to demand; will the product work? We are of the view that the "use case" for care suites is strong, however, it is a relatively untested product in New Zealand. The early signs are positive, but OCA is, in our view, a high risk, high reward stock.&nbsp;



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: V Shaped Recovery; Upgrade to OUTPERFORM