Ryman Healthcare Limited

Company Overview: Ryman Healthcare Limited (NZX: RYM) develops, owns and operates integrated retirement villages, rest homes and hospitals for elderly people. The Company offers various living and care options, including independent living, assisted living, rest home, hospital and dementia. The Company offers a specialized care unit for residents. The Company's Villages include residents requiring short-term care, respite care, and day care. The Company also offers Day Care program for those just needing assistance during the day. The Company operates in New Zealand with various operations in Australia.

RYM Details

Ryman Healthcare Limited was founded in Canterbury in 1984 to provide retirement living and care options in New Zealand. The company has a market capitalisation of around $6.4 billion as on 26^th July 2021.

Decent Past Performance: Looking at the past performance, RYM’s top-line and bottom-line for FY17-21 grew with a compounded annual growth rate (CAGR) of 12.05% and 4.36%, respectively. Its total revenue for FY21 stood at $455.8 million, as compared to $289.2 million in FY17. Its net profit for FY21 stood at $423.1 million, as compared to $356.7 million in FY17.

Exhibit 1: Operating Performance

(Source: Company Reports, Analysis by Kalkine Group)

Results Performance (Year Ended March 31, 2021 – FY 2021)

• Revenue Improved by 7.5% YoY: The company’s total revenue for the full-year period stood at $455.8 million , an increase of 7.5%  on the previous year. Total income for the period stood at $872.64 million, an increase of 53.5% on the previous year. Total net profit for the period was reported at $423.06 million, an increase of 59.8% on the previous year, which can be attributed to investment property revaluations.
• Fall in Underlying Profit: The underlying profit for the year stood at $224.4 million, a decrease of 7.3% on the previous year reflecting increased costs of responding to the pandemic and the impact of lockdowns on the ability of the company to undertake construction and transact unit.
• Strong Demand: RYM’s integrated villages and high-quality care continued to be in strong demand, with care occupancy in established villages running at 97%. The company built 736 new beds and units during the year, with only 1.4% of  its portfolio available for resale on March 31, 2021, as compared to 1.9% on September 30, 2020. Net tangible assets per share for the period stood at 557.4 cents per share, as compared to 452.6 cents per share in the previous year.
• Full Year Dividend Constituted 50% of Underlying Profit: The Board of Directors declared a final dividend of 13.6 cents per share, taking the full year dividend to 22.4 cents per share, 50% of underlying profit. The company has managed to return over $1.03 billion to its shareholders since it listed in the year 1999, when it garnered $25 million. Its total assets stood at $9.17 billion, up by 19.5%.
• Important Developments: The company achieved its long-term target of having five villages opened in Victoria by the end of 2020, with another six villages in the pipeline in Australia. It bought new village sites at Essendon in Melbourne, and at Karaka and Cambridge in New Zealand, while it sold its Coburg site in Melbourne after opting to buy a more attractive site in nearby Essendon. During the period, RYM received approval to build new villages at Ringwood East in Melbourne, Northwood in Christchurch and two Auckland villages at Takapuna and Kohimarama.

Exhibit 2: Income Statement

(Source: Company Reports)

Top 10 Shareholders: 

The top 10 shareholders have been highlighted in the pie-chart, which together forms around 32.23% of the total shareholding. Cumming (Geoffrey Alexander) and Hickman Family Trustees Ltd. are holding a maximum stake in the company at 9.81% and 6.60%, respectively, as provided in the chart shown below:

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

A Quick Look at Key Metrics: 

As can be depicted from the below chart, Asset/Equity ratio of the company rose from 2.99x in FY 2017 to 3.24x in FY 2021. Notably, YoY improvement was witnessed in the company’s ROE. In FY 2020, ROE was 11.8% and, in FY 2021, it was 16.5%, which implies that the company has delivered decent returns to its shareholders.

Exhibit 4: Key Metrics

• Important Pipeline: The company’s development pipeline of 25 new villages is likely  to  generate  capital proceeds of $5.3 billion with recurring income of $420 million, subject to market conditions and consenting outcomes.
• Record Cash Collection: In FY21, the company has a record cash collection of $1.18 billion, which will support its largest ever building programme. It is planning to have 14 villages under construction, seven in Australia and seven in New Zealand later this year.

Key Risks:

The company stated that there could be some ongoing uncertainty because of the pandemic. Also,  elderly people are more prone to Covid-19 which could influence the company’s operations.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Recommendation:

The company’s stock declined by ~13.16% in 9 months. It has made a 52-week low and high of $12.15 and $16.02, respectively.

We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price  that reflects the rise of low double-digit (in percentage terms). We have applied a slight premium to EV/EBITDA multiple (NTM) (Peer Average) considering rise in NPAT and its operations in aged-care business segments. Also, the company witnessed a rise in cash and cash equivalents which could help the company in tackling challenges ahead. In the coming period, the company is expected to see improvement in its earnings with the rise in the old population and increase in immigration activities.

Hence, we give a “Buy” recommendation on the stock at the current market price of NZ$12.800 per share, down by 1.69% on July 26, 2021.

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.

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