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>Ryman Healthcare (RYM)</h2>
1H20 — Initial thoughts
Below expectations due to one-off development margin hit – Strong FY20 guidance provided.
<ul>
<li>RYM 1H20 underlying profit was NZ$103m, up +6.1% versus our forecast of NZ$108.3m. Underlying EBITDA of NZ$126.1m was up +7.8%. The major miss versus our forecast was development margins which were well down on the pcp at 20% and impacted by redevelopment / earthquake rebuild work at the Malvina Major village &nbsp;in Wellington. The development margins was very low at its previous Wellington development at Petone given earthquake strengthening requirements. Excluding this work, the margin was 25%, close to the 27% in the pcp and our forecast of 27%.</li>
<li>Operating cash flow was NZ$401m, up +18% and the interim dividend was up +6.5% in line with the underlying profit growth at 11.5cps.</li>
<li>RYM has provided strong FY20 underlying profit guidance of between NZ$250m and NZ$265m, and we are at the middle of the range at NZ$258.9m and don’t expect to martially change our numbers.</li>
<li>Development progression in Melbourne continues to be a focus with the target remaining to have 5 villages open in the area by the end of CY20. RYM purchased two new sites in 1H20, including Highett in Victoria and Northwood in Christchurch. With these acquisitions RYM’s landbank now consists of 22 sites and ~7,000 units and beds. This quantum of development represents 66% of its existing portfolio.</li>
<li>The target build rate for FY20 is 900 units and beds, an improvement of ~140 upon that achieved in FY19 (757) and above our forecast of ~800 units and beds. RYM’s medium term target build rate remains 1600 units and beds.</li>
<li>Demand metrics remain robust with care occupancy 97% and resales vacancy just 1.6%. New sales and resales pricing remained steady, as were resales margins at 24%.</li>
<li>New stock delivered was 234 units highlighting the importance of 2H20 build programme with over 650 units/beds expected. RYM is a period of very strong build growth and will be working across 12 villages in 2H20.</li>
<li>The level of overall fair value gain for the investment portfolio of retirement villages was NZ$180m. The realised gains from actual sales activity was $87m, (up +6% versus the pcp). The NTA is up +12% to NZ$4.53. Gearing ratios increased modestly (37.2% to 39.6% and is at 20.7% in terms of debt to total assets). Given the growth and momentum in the business and that most of the debt is project related, our view remains that gearing remains at manageable levels.</li>
</ul>
Investor briefing:
<ul>
<li>There is the opportunity to meet with management and board members at 10am at Rydges Hotel in Auckland (recommended) or take part in a conference call: 10am (NZ time) dial NZ 0800 667 018, AU 1 800 148 258, Direct Line +61 280 385 271 Passcode: 3543717</li>
</ul>
1H20 result summary
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 134.8pt;">
Six months ending 30 September
</td>
<td style="width: 47.8pt;">
1H19
</td>
<td style="width: 47.8pt;">
1H20
</td>
<td style="width: 47.8pt;">
Chg
</td>
<td style="width: 47.8pt;">
Forsyth Barr
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Revenue
</td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
Care fees
</td>
<td style="width: 47.8pt;">
147.7
</td>
<td style="width: 47.8pt;">
163.1
</td>
<td style="width: 47.8pt;">
10.4%
</td>
<td style="width: 47.8pt;">
157.8
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Management fees
</td>
<td style="width: 47.8pt;">
39.2
</td>
<td style="width: 47.8pt;">
44.4
</td>
<td style="width: 47.8pt;">
13.2%
</td>
<td style="width: 47.8pt;">
43.0
</td>
</tr>
<tr>
<td colspan="2" style="width: 182.6pt;">
Fair value movement of investment property
</td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
&nbsp; Realised value movement
</td>
<td style="width: 47.8pt;">
82.6
</td>
<td style="width: 47.8pt;">
87.3
</td>
<td style="width: 47.8pt;">
5.7%
</td>
<td style="width: 47.8pt;">
96.6
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
&nbsp; Unrealised value movement
</td>
<td style="width: 47.8pt;">
72.8
</td>
<td style="width: 47.8pt;">
92.7
</td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
Total fair value movement
</td>
<td style="width: 47.8pt;">
155.4
</td>
<td style="width: 47.8pt;">
180.0
</td>
<td style="width: 47.8pt;">
15.8%
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
Total revenue
</td>
<td style="width: 47.8pt;">
342.4
</td>
<td style="width: 47.8pt;">
387.5
</td>
<td style="width: 47.8pt;">
13.2%
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
&nbsp; Total costs
</td>
<td style="width: 47.8pt;">
152.5
</td>
<td style="width: 47.8pt;">
168.7
</td>
<td style="width: 47.8pt;">
10.6%
</td>
<td style="width: 47.8pt;">
164.7
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Total EBITDA
</td>
<td style="width: 47.8pt;">
189.8
</td>
<td style="width: 47.8pt;">
218.8
</td>
<td style="width: 47.8pt;">
15.3%
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
&nbsp; Depreciation
</td>
<td style="width: 47.8pt;">
11.3
</td>
<td style="width: 47.8pt;">
13.8
</td>
<td style="width: 47.8pt;">
22.2%
</td>
<td style="width: 47.8pt;">
12.5
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
EBIT
</td>
<td style="width: 47.8pt;">
178.6
</td>
<td style="width: 47.8pt;">
205.1
</td>
<td style="width: 47.8pt;">
14.8%
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
&nbsp; Net interest
</td>
<td style="width: 47.8pt;">
-8.7
</td>
<td style="width: 47.8pt;">
-9.3
</td>
<td style="width: 47.8pt;">
7.2%
</td>
<td style="width: 47.8pt;">
-11.9
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
EBT
</td>
<td style="width: 47.8pt;">
169.9
</td>
<td style="width: 47.8pt;">
195.7
</td>
<td style="width: 47.8pt;">
15.2%
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
&nbsp; Tax (deferred)
</td>
<td style="width: 47.8pt;">
0.4
</td>
<td style="width: 47.8pt;">
7.4
</td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;">
0.0
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Reported profit (NZ IFRS)
</td>
<td style="width: 47.8pt;">
169.5
</td>
<td style="width: 47.8pt;">
188.3
</td>
<td style="width: 47.8pt;">
11.1%
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
&nbsp; Unrealised value movement
</td>
<td style="width: 47.8pt;">
-72.8
</td>
<td style="width: 47.8pt;">
-92.7
</td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;">
0.0
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
&nbsp; Tax (deferred) + other
</td>
<td style="width: 47.8pt;">
0.4
</td>
<td style="width: 47.8pt;">
7.4
</td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;">
0.0
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Normalised or underlying profit
</td>
<td style="width: 47.8pt;">
97.1
</td>
<td style="width: 47.8pt;">
103.0
</td>
<td style="width: 47.8pt;">
6.1%
</td>
<td style="width: 47.8pt;">
108.3
</td>
</tr>
<tr>
<td style="width: 134.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td colspan="3" style="width: 230.4pt;">
Underlying earnings (excludes unrealised gains)
</td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
Revenue
</td>
<td style="width: 47.8pt;">
269.6
</td>
<td style="width: 47.8pt;">
294.8
</td>
<td style="width: 47.8pt;">
9.4%
</td>
<td style="width: 47.8pt;">
297.4
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
EBITDA
</td>
<td style="width: 47.8pt;">
117.0
</td>
<td style="width: 47.8pt;">
126.1
</td>
<td style="width: 47.8pt;">
7.8%
</td>
<td style="width: 47.8pt;">
132.7
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
EBIT
</td>
<td style="width: 47.8pt;">
105.8
</td>
<td style="width: 47.8pt;">
112.4
</td>
<td style="width: 47.8pt;">
6.2%
</td>
<td style="width: 47.8pt;">
120.2
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Underlying profit
</td>
<td style="width: 47.8pt;">
97.1
</td>
<td style="width: 47.8pt;">
103.0
</td>
<td style="width: 47.8pt;">
6.1%
</td>
<td style="width: 47.8pt;">
108.3
</td>
</tr>
<tr>
<td style="width: 134.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
EPS (cents)
</td>
<td style="width: 47.8pt;">
19.4
</td>
<td style="width: 47.8pt;">
20.6
</td>
<td style="width: 47.8pt;">
6.1%
</td>
<td style="width: 47.8pt;">
21.7
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
DPS (cents)
</td>
<td style="width: 47.8pt;">
10.8
</td>
<td style="width: 47.8pt;">
11.5
</td>
<td style="width: 47.8pt;">
6.5%
</td>
<td style="width: 47.8pt;">
12.0
</td>
</tr>
<tr>
<td style="width: 134.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
Operating cash flow
</td>
<td style="width: 47.8pt;">
217.8
</td>
<td style="width: 47.8pt;">
256.1
</td>
<td style="width: 47.8pt;">
17.6%
</td>
<td style="width: 47.8pt;">
195.0
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
NTA
</td>
<td style="width: 47.8pt;">
4.06
</td>
<td style="width: 47.8pt;">
4.53
</td>
<td style="width: 47.8pt;">
11.6%
</td>
<td style="width: 47.8pt;"></td>
</tr>
<tr>
<td style="width: 134.8pt;">
Six months ending 30 September
</td>
<td style="width: 47.8pt;">
1H19
</td>
<td style="width: 47.8pt;">
1H20
</td>
<td style="width: 47.8pt;">
Chg
</td>
<td style="width: 47.8pt;">
Forsyth Barr
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Sales - new units
</td>
<td style="width: 47.8pt;">
168
</td>
<td style="width: 47.8pt;">
229
</td>
<td style="width: 47.8pt;">
36.3%
</td>
<td style="width: 47.8pt;">
224
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Ave unit price - new sales (NZ$000s)
</td>
<td style="width: 47.8pt;">
716.9
</td>
<td style="width: 47.8pt;">
701.8
</td>
<td style="width: 47.8pt;">
-2.1%
</td>
<td style="width: 47.8pt;">
710.0
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Gross development margin (%)
</td>
<td style="width: 47.8pt;">
27.0%
</td>
<td style="width: 47.8pt;">
19.8%
</td>
<td style="width: 47.8pt;">
-26.6%
</td>
<td style="width: 47.8pt;">
27.0%
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Sales - resold units
</td>
<td style="width: 47.8pt;">
405
</td>
<td style="width: 47.8pt;">
454
</td>
<td style="width: 47.8pt;">
12.1%
</td>
<td style="width: 47.8pt;">
441
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Ave unit price - resales (NZ$000s)
</td>
<td style="width: 47.8pt;">
499.0
</td>
<td style="width: 47.8pt;">
517.2
</td>
<td style="width: 47.8pt;">
3.6%
</td>
<td style="width: 47.8pt;">
507.0
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Gross resales margin (%)
</td>
<td style="width: 47.8pt;">
25.0%
</td>
<td style="width: 47.8pt;">
23.6%
</td>
<td style="width: 47.8pt;">
-5.5%
</td>
<td style="width: 47.8pt;">
24.0%
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
Resales gain
</td>
<td style="width: 47.8pt;">
50.5
</td>
<td style="width: 47.8pt;">
55.5
</td>
<td style="width: 47.8pt;">
9.8%
</td>
<td style="width: 47.8pt;">
53.7
</td>
</tr>
<tr>
<td style="width: 134.8pt;">
New sales gain
</td>
<td style="width: 47.8pt;">
32.5
</td>
<td style="width: 47.8pt;">
31.8
</td>
<td style="width: 47.8pt;">
-2.1%
</td>
<td style="width: 47.8pt;">
42.9
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis
Jeremy Simpson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
T: +64 9 368 0022 M: +64 21 995 998 TF:0800 367 227 F: +64 9 368 0092 P: PO Box 97, Auckland 1140 W: <a href="https://foundry.smartkarma.com/www.forsythbarr.co.nz" target="_blank" rel="noopener">www.forsythbarr.co.nz</a>

Ryman Healthcare (RYM)
1H20 — Initial thoughts
Below expectations due to one-off development margin hit – Strong FY20 guidance provided.

RYM 1H20 underlying profit was NZ$103m, up +6.1% versus our forecast of NZ$108.3m. Underlying EBITDA of NZ$126.1m was up +7.8%. The major miss versus our forecast was development margins which were well down on the pcp at 20% and impacted by redevelopment / earthquake rebuild work at the Malvina Major village &nbsp;in Wellington. The development margins was very low at its previous Wellington development at Petone given earthquake strengthening requirements. Excluding this work, the margin was 25%, close to the 27% in the pcp and our forecast of 27%.
Operating cash flow was NZ$401m, up +18% and the interim dividend was up +6.5% in line with the underlying profit growth at 11.5cps.
RYM has provided strong FY20 underlying profit guidance of between NZ$250m and NZ$265m, and we are at the middle of the range at NZ$258.9m and don’t expect to martially change our numbers.
Development progression in Melbourne continues to be a focus with the target remaining to have 5 villages open in the area by the end of CY20. RYM purchased two new sites in 1H20, including Highett in Victoria and Northwood in Christchurch. With these acquisitions RYM’s landbank now consists of 22 sites and ~7,000 units and beds. This quantum of development represents 66% of its existing portfolio.
The target build rate for FY20 is 900 units and beds, an improvement of ~140 upon that achieved in FY19 (757) and above our forecast of ~800 units and beds. RYM’s medium term target build rate remains 1600 units and beds.
Demand metrics remain robust with care occupancy 97% and resales vacancy just 1.6%. New sales and resales pricing remained steady, as were resales margins at 24%.
New stock delivered was 234 units highlighting the importance of 2H20 build programme with over 650 units/beds expected. RYM is a period of very strong build growth and will be working across 12 villages in 2H20.
The level of overall fair value gain for the investment portfolio of retirement villages was NZ$180m. The realised gains from actual sales activity was $87m, (up +6% versus the pcp). The NTA is up +12% to NZ$4.53. Gearing ratios increased modestly (37.2% to 39.6% and is at 20.7% in terms of debt to total assets). Given the growth and momentum in the business and that most of the debt is project related, our view remains that gearing remains at manageable levels.

Investor briefing:

There is the opportunity to meet with management and board members at 10am at Rydges Hotel in Auckland (recommended) or take part in a conference call: 10am (NZ time) dial NZ 0800 667 018, AU 1 800 148 258, Direct Line +61 280 385 271 Passcode: 3543717

1H20 result summary




Six months ending 30 September


1H19


1H20


Chg


Forsyth Barr




Revenue








Care fees


147.7


163.1


10.4%


157.8




Management fees


39.2


44.4


13.2%


43.0




Fair value movement of investment property







&nbsp; Realised value movement


82.6


87.3


5.7%


96.6




&nbsp; Unrealised value movement


72.8


92.7






Total fair value movement


155.4


180.0


15.8%





Total revenue


342.4


387.5


13.2%





&nbsp; Total costs


152.5


168.7


10.6%


164.7




Total EBITDA


189.8


218.8


15.3%





&nbsp; Depreciation


11.3


13.8


22.2%


12.5




EBIT


178.6


205.1


14.8%





&nbsp; Net interest


-8.7


-9.3


7.2%


-11.9




EBT


169.9


195.7


15.2%





&nbsp; Tax (deferred)


0.4


7.4



0.0




Reported profit (NZ IFRS)


169.5


188.3


11.1%





&nbsp; Unrealised value movement


-72.8


-92.7



0.0




&nbsp; Tax (deferred) + other


0.4


7.4



0.0




Normalised or underlying profit


97.1


103.0


6.1%


108.3











Underlying earnings (excludes unrealised gains)






Revenue


269.6


294.8


9.4%


297.4




EBITDA


117.0


126.1


7.8%


132.7




EBIT


105.8


112.4


6.2%


120.2




Underlying profit


97.1


103.0


6.1%


108.3











EPS (cents)


19.4


20.6


6.1%


21.7




DPS (cents)


10.8


11.5


6.5%


12.0











Operating cash flow


217.8


256.1


17.6%


195.0




NTA


4.06


4.53


11.6%





Six months ending 30 September


1H19


1H20


Chg


Forsyth Barr




Sales - new units


168


229


36.3%


224




Ave unit price - new sales (NZ$000s)


716.9


701.8


-2.1%


710.0




Gross development margin (%)


27.0%


19.8%


-26.6%


27.0%




Sales - resold units


405


454


12.1%


441




Ave unit price - resales (NZ$000s)


499.0


517.2


3.6%


507.0




Gross resales margin (%)


25.0%


23.6%


-5.5%


24.0%




Resales gain


50.5


55.5


9.8%


53.7




New sales gain


32.5


31.8


-2.1%


42.9




Source: Forsyth Barr analysis
Jeremy Simpson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
T: +64 9 368 0022 M: +64 21 995 998 TF:0800 367 227 F: +64 9 368 0092 P: PO Box 97, Auckland 1140 W: www.forsythbarr.co.nz

Ryman Healthcare (RYM): 1H20 — Initial Thoughts