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</h2>
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OUTPERFORM
The recent significant pull back in the&nbsp;RYM&nbsp;share price is an opportunity&nbsp;to buy the market leader and a business that remains very well placed for medium to long term growth, given its needs based portfolio and development expertise. Upgrade to OUTPERFORM. Consistent with our sector view, we have reduced near-term earnings based on a scenario that assumes very soft conditions for sales of retirement units over the next six months, and no development activity, then a recovery over the following 18 to 24 months given the significant uncertainties that exist.
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Upgraded to OUTPERFORM&nbsp;
While the outlook for operators is likely to continue to contain a number of uncertainties, we remain positive about the long term business case for RYM. While it is still trading at a significant premium to the sector, this is an opportunity to buy the market leader. Our operating scenario of essentially no sales over the next six months and a recovery over the subsequent 18–24 months has resulted in significantly lower underlying earnings as detailed in Figure 2. Our DCF valuation under this scenario has dropped from NZ$14.50 to NZ$12.80 down -12%, and our target price has dropped from NZ$15.70 to NZ$13.80, down -12%, and still well above the share price.​​​​​​​
A strong care brand a key driver
A risk factor for operators has been a near-term oversupply of retirement village units. We expect unlisted operators will take considerably longer to re-launch development activity on the other side of this crisis. We also expect an even greater shortage of good quality aged care beds, which were only getting built by the large integrated operators given the low returns on new direct aged care investment. Going into this crisis, good quality facilities were already essentially full and the demographics are not changing with a sharply increasing number of people aged in their mid-80s starting to occur. This plays into the hands of the integrated operators with a strong care brand, and RYM is the market leader in this regard.
RYM&nbsp;has the only genuine nationwide full continuum&nbsp;of care with dementia services, a high number of serviced apartments which are affordable, and heavily needs based product.&nbsp;RYM&nbsp;has significant headroom to lower prices and still generate solid&nbsp;resales&nbsp;gains. Compared to 2–3 years ago it has a more flexible development pipeline in terms&nbsp;of the type of development and geographic&nbsp;location, giving&nbsp;it development flexibility.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Ryman Healthcare
Upgrade to OUTPERFORM
OUTPERFORM
The recent significant pull back in the&nbsp;RYM&nbsp;share price is an opportunity&nbsp;to buy the market leader and a business that remains very well placed for medium to long term growth, given its needs based portfolio and development expertise. Upgrade to OUTPERFORM. Consistent with our sector view, we have reduced near-term earnings based on a scenario that assumes very soft conditions for sales of retirement units over the next six months, and no development activity, then a recovery over the following 18 to 24 months given the significant uncertainties that exist.

Upgraded to OUTPERFORM&nbsp;
While the outlook for operators is likely to continue to contain a number of uncertainties, we remain positive about the long term business case for RYM. While it is still trading at a significant premium to the sector, this is an opportunity to buy the market leader. Our operating scenario of essentially no sales over the next six months and a recovery over the subsequent 18–24 months has resulted in significantly lower underlying earnings as detailed in Figure 2. Our DCF valuation under this scenario has dropped from NZ$14.50 to NZ$12.80 down -12%, and our target price has dropped from NZ$15.70 to NZ$13.80, down -12%, and still well above the share price.​​​​​​​
A strong care brand a key driver
A risk factor for operators has been a near-term oversupply of retirement village units. We expect unlisted operators will take considerably longer to re-launch development activity on the other side of this crisis. We also expect an even greater shortage of good quality aged care beds, which were only getting built by the large integrated operators given the low returns on new direct aged care investment. Going into this crisis, good quality facilities were already essentially full and the demographics are not changing with a sharply increasing number of people aged in their mid-80s starting to occur. This plays into the hands of the integrated operators with a strong care brand, and RYM is the market leader in this regard.
RYM&nbsp;has the only genuine nationwide full continuum&nbsp;of care with dementia services, a high number of serviced apartments which are affordable, and heavily needs based product.&nbsp;RYM&nbsp;has significant headroom to lower prices and still generate solid&nbsp;resales&nbsp;gains. Compared to 2–3 years ago it has a more flexible development pipeline in terms&nbsp;of the type of development and geographic&nbsp;location, giving&nbsp;it development flexibility.
Jeremy Simpson CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Ryman Healthcare

Ryman Healthcare: Upgrade to OUTPERFORM