Arvida Group Limited

Company Overview: Arvida Group Limited (NZX: ARV) is one of New Zealand’s largest aged care providers owning and operating 32 retirement villages spread across the country. The company has expanded largely with the acquisition of fourteen villages and has a development pipeline of ~1,683 units with an annual build rate of 200 units. ARV invests in its residents and aid network improving programs and local communities, with a vision to strengthen its foothold in the New Zealand retirement and aged care industry, forming rich and dynamic resident communities.

ARV Details

ARV Rides on Decent 1HFY22 Fundamentals & Capital Raising Program:  Despite economic uncertainties, ARV has delivered a strong 1HFY22 performance, with robust growth in the top and bottom lines.

• Impressive Top & Bottom-Line Performance: In 1HFY22, the company’s revenues soared from $86.2 million reported in the year-ago period to $94 million, depicting an increase of 9% year over year, reflecting units added due to development activities and the resale of units at higher prices. Underlying profits stood at $26.6 million in 1HFY22, depicting a rise of 30% on pcp basis. Reported IFRS profit after tax went up by 80% on pcp basis, owing to the limited impact led by Covid-19.
• Stable Dividend Policy & Capital Raise: The board approved an interim dividend of 2.5 cents per share, compared to 2.4 cents per share reported in the year-ago period and paid on 15 December 2021. The company has a dividend policy to pay out annual dividends between 40% and 60% of underlying NPAT. A robust capital allocation strategy drives long-term sustainable growth and shareholder value. ARV successfully completed a capital raising program of $330 million to fund the acquisition.
• Liquidity Position: The company’s cash flows from operating activities amounted to $69.3 million, compared to $52.9 million reported in 1HFY21. The company recorded $11.2 million in cash at the end of 1HFY22 vs $6.42 million at the end of 31 March 2021. The company’s total sales of occupation rights went up by 74% on pcp basis. Total assets grew to $2.33 billion, up from $2 billion at the end of 1HFY21. The gearing level stood at 24% in 1HFY22.

• Acquisition Synergies: In October 2021, ARV agreed to acquire the Arena Living group for a purchase consideration of $345 million. The acquisition was completed on 15 November 2021, leading to a rise in ARV’s portfolio weighting in key New Zealand population growth areas.

Bottom-Line Highlight; Analysis by Kalkine Group

Key Metrics: For 1HFY22, the company reported an operating margin of 80.8%, higher than the year-ago figure of 50.1%. In 1HFY22, the company recorded ROE of 8.8% compared to the year-ago figure of 5.7% 

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 29.46% of the total shareholdings, while the top 4 constitutes the maximum holding. Forsyth Barr Investment Management Limited held the maximum number of shares with a percentage holding of 11.39%, followed by Milford Asset Management Ltd. holding 5.45%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis: The company’s inability to detect early and respond to cyclical downturns may impact financial results. ARV is subject to a wide range of regulatory requirements and jurisdictions. Moreover, integration risk, foreign exchange flection risks, and any interruption triggered by ineffective coordination may lead to operational disruption, penalties, as well as reputational damage.

Outlook: ARV remains on track to expand the development activities. During the six months ended September 2021, ARV delivered 68 new homes across seven villages and targets to build over 150 new homes in 2HFY22, taking the total number of new homes to more than 200 for FY22. Looking forward, upcoming expansion at Waikanae Beach, Te Awamutu and greenfield sites will add more than 450 units to ARV’s portfolio. Continued buoyancy in the property market, and high care occupancy place the company well for continued strong financial performance. The company is set to report its FY22 results on 30 May 2022.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company went down by ~21.94% in the past six months. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium as compared to its peers, considering impressive 1HFY22 performance, decent liquidity and outlook, stable dividend policy, etc. For the purpose of valuation, peers such as Oceania Healthcare Ltd (NZX: OCA), Summerset Group Holdings Ltd (NZX: SUM), Ryman Healthcare Ltd (NZX: RYM) and others have been considered. Considering the rise in profits, enhancing shareholder’s value through dividend capital raising program, acquisition synergies, higher revenue base, decent outlook, and indicative upside in valuation, we recommend a ‘Buy’ rating on the stock at the closing market price of $1.57, up by ~3.29% as on 17 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

ARV Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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