Ryman's Focus on Continuum of Care Is a Valuable Differentiator

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

Ryman Healthcare’s first-half fiscal 2018 earnings growth of 11.4% to NZD 17 cents per share exceeded expectations mainly due to a jump in profit on resold units. The average profit for each of the 394 units resold spiked 25% on that recorded in fiscal 2017 to NZD 134,000. Part of the increase was one-off, reflecting a higher-than-usual number of older units, while part was attributable to across-the-board price growth. Market prices for retirement living units and serviced apartments have moved ahead of our prior expectations and we’ve raised our assumptions to reflect the new paradigm. Our fair value estimate increased 5% to NZD 10, with narrow-moat-rated Ryman screening as slightly undervalued at current levels. Our fiscal 2018 forecast for underlying profit of NZD 200 million is at the lower end of the guidance range of NZD 195 to 210 million, with the midpoint of the guidance range implying profit growth of 13.8%.All aspects of Ryman’s business are performing well, aided by very favourable demographic trends. The pool of people at the age when retirement living is an attractive option has accelerated and will increase very strongly over the next five years. Market conditions are so favourable Ryman could raise its prices, but the board and management appear to be playing a longer game, focusing on service over profits, which provides increased comfort in the long-term earnings trajectory. Ryman’s conservative pricing is illustrated with the deferred management fee, or DMF, of 20% of the unit's entry price. For individual living units and serviced apartments, the DMF to Ryman accrues over five and three years, respectively. Major competitors Summerset and Metlifecare charge higher DMFs of 25% and 30%, respectively and the DMFs accrue at a faster rate for both.Analyst: Tony Sherlock

Ryman Healthcare’s first-half fiscal 2018 earnings growth of 11.4% to NZD 17 cents per share exceeded expectations mainly due to a jump in profit on resold units. The average profit for each of the 394 units resold spiked 25% on that recorded in fiscal 2017 to NZD 134,000. Part of the increase was one-off, reflecting a higher-than-usual number of older units, while part was attributable to across-the-board price growth. Market prices for retirement living units and serviced apartments have moved ahead of our prior expectations and we’ve raised our assumptions to reflect the new paradigm. Our fair value estimate increased 5% to NZD 10, with narrow-moat-rated Ryman screening as slightly undervalued at current levels. Our fiscal 2018 forecast for underlying profit of NZD 200 million is at the lower end of the guidance range of NZD 195 to 210 million, with the midpoint of the guidance range implying profit growth of 13.8%.All aspects of Ryman’s business are performing well, aided by very favourable demographic trends. The pool of people at the age when retirement living is an attractive option has accelerated and will increase very strongly over the next five years. Market conditions are so favourable Ryman could raise its prices, but the board and management appear to be playing a longer game, focusing on service over profits, which provides increased comfort in the long-term earnings trajectory. Ryman’s conservative pricing is illustrated with the deferred management fee, or DMF, of 20% of the unit's entry price. For individual living units and serviced apartments, the DMF to Ryman accrues over five and three years, respectively. Major competitors Summerset and Metlifecare charge higher DMFs of 25% and 30%, respectively and the DMFs accrue at a faster rate for both.Analyst: Tony Sherlock

Surge in Prices for Units Prompts 5% Increase in Ryman FVE to NZD 10