Oceania Healthcare Limited

Company Overview: Oceania Healthcare Limited (NZX: OCA) operates in the New Zealand residential aged care and retirement village sectors. The company at its aged care facilities, provides a full range of residential aged care services including rest homes, hospital, and dementia level care, and under retirement villages, it provides residents villas and apartments. OCA is presently NZ's leading provider of residential aged care. The company is also an experienced brownfields developer of aged care as well as retirement village facilities across New Zealand.

OCA Details

Oceania Healthcare Limited (NZX: OCA) is engaged in providing retirement village and aged care services. The market capitalisation of the company stood at ~$816.735 million on 24^th January 2022.

Strong 10-Month Trading Results

• OCA’s aged care business performed well throughout the period despite COVID19 disruptions. Its occupancy increased to 92.4% for the 10 months to 31 March 2021 as compared to 91.7% for the 10 months to 31 March 2020.
• Operating cash flow was $96.0 Mn for the 10-month period to 31 March 2021 as compared to $99.4 Mn for the 12 months to 31 May 2020. This was due to continued strong sales volumes.

Exhibit 1: Financial Statistics

Source: Analysis by Kalkine Group

Result Performance (H1FY22 Ended 30 September 2021)

• Revenue up 9.7%: Unaudited underlying EBITDA for the six months stood at $36.5 million, an increase of 19.7% vs H1FY21. Sales volumes (for both independent living apartments and villas, as well as care suites) were a 10.6% increase from H1FY21, despite ongoing COVID-19 lockdown restrictions.

• NPAT up 49%: OCA’s unaudited reported net profit after tax rose 48.9% to $36.9 Mn for the six month period ended 30 September 2021.

• Total assets: OCA’s total assets increased to $2.1 billion, up 9.7% ($182.1 Mn) on 31 March 2021, mainly because of significant capital expenditure as well as the acquisition of the Waterford and Franklin sites during the period.

• Interim Dividend: The Board of Directors declared an interim dividend of 2.1 cents per share, with a record date of 6 December 2021. Its payment date was 20 December 2021

Results Performance (Period Ended 31 March 2021)

OCA’s unaudited underlying EBITDA was $56.2 Mn for the 10 months ended 31^st March 2021 which was 8% higher than the pcp of the 10^th months to 31^st March 2020 (unaudited). This was primarily due to robust sales of the new developments as well as resales volumes in the current period and the ongoing receipt of the deferred management fees from the developments wrapped up in the prior periods.

OCA’s total assets, as at 31 March 2021, amounted to $1.9 Bn as compared to $1.5 Bn as at 31^st May 2020.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around ~17.84% of the total shareholding. ANZ New Zealand Investments Limited and Tomlinson (Gregory Raymond) are holding a maximum stake in the company at 6.21% and 3.75%, respectively, as provided in the table below:

Exhibit 2: Top 10 Shareholders

Source: Analysis by Kalkine Group 

A Quick Look at Key Metrics:

For the half-year ended September 2021, the company has reported EBITDA margin of 6.3% as compared to 4.7% for the 6 months ended November 2020. The company has also reported a rise in its net margin. Therefore, it could be said that OCA is possessing decent capabilities to convert its top line into bottom line.

Exhibit 3: Key Metrics

Recent Updates:

• On 10 December 2021, the company advised that the strike price for the Dividend Reinvestment Plan operating in respect of the dividend which was payable on 20 December 2021 was set at NZ$1.2837 per share.
• On 25 November 2021, Oceania announced the appointment of Andrew Buckingham as Group General Manager Property & Development. The accomplished property developer with over 35 years of experience will be starting the role in February 2022.

Outlook:

Despite another year of ongoing challenges associated with COVID-19, the company has been resilient in managing its risks and has performed decent over H1FY22. Oceania plans to explore and develop a new service model for high needs and complex aged care residents through its exclusive partnership with the Bay of Plenty District Health Board. The company is expecting to complete 112 units+ & care suites in FY22.

Industry Outlook:

The industry has a strong short- and long-term growth potential. With the ageing population of New Zealand, the current supply could be increased so that it can keep up with the demand.

From an investment point of view, investing in the industry is an opportunity not to be missed. It is a booming sector. The industry is adjusting to suit the current/future demographic by appealing to different ethnicities; for example, providing a variety of food options. Additionally, regulations are being reviewed to benefit residents, which in will likely encourage an increase the number of occupants.

Risks:

The company is exposed to credit, market, and liquidity risk that arises in the normal course of the business. The company is also prone to the risks related to the COVID-19 pandemic. OCA operates in both a highly competitive environment and a highly regulated environment. A decrease in market share or failure to comply with regulations could impact its overall business.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Performance:

OCA stated that it has completed 49 apartments at Eden (Auckland) in April 2021 as well as eight villas at Gracelands (Hastings) in September 2021. Notably, it was also mentioned that 545 units (apartments, villas as well as care suites) were under construction as at 30^th September 2021.

The stock has been valued using P/E multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average) considering the decent outlook as well as its resilient business model.

Considering the aforementioned facts, we give a “Buy” recommendation on the stock at the current market price of NZ$1.12 per share (New Zealand Time: 12:25 PM (GMT +12)) on 24^th January 2022.

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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