Ryman Healthcare Limited

Company Overview:  develops, owns and operates integrated retirement villages, resthomes and hospitals for the elderly people. The Company offers various living and care options, including independent living, assisted living, resthome, hospital and dementia. The independent townhouses and apartments are occupied by residents wishing to retain a level of independence. The Company's Assisted Living offers a range of services, including meals, housekeeping services, morning and afternoon tea, shopping trips and the resort style facilities offered by the village. Resthome and Hospital level care in its Village offers residents in clinical care. 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

Decent CAGR Witnessed in Top and Bottom Line: Founded in Christchurch in 1984, Ryman Healthcare Limited (NZX: RYM) owns and operates 36 retirement villages in New Zealand and Australia. The company employs more than 5,700 staff and the company’s villages are home to more than 11,400 residents. It aims to build a supportive and understanding community network by demystifying dementia which allows residents to feel sense of contentment and live life in the moment. The company significantly lifted its land bank over the past three years to match its growth aspirations in New Zealand and Victoria. It is now moving into its biggest ever build programme on stunning sites. During the first half of FY20, RYM acquired two new sites i.e. Northwood in Christchurch and Highett in Victoria, taking the land bank to 7,074 units and beds. The company is moving into a record expansion phase, reflecting its commitment to build as many communities as it can to benefit more people from the Rayman experience.

Looking at the past performance over FY15 to FY19, total revenue and net income of the company have grown with a CAGR (compounded annual growth rate) of 13.91% and 7.74%, respectively. Group’s total revenue improved from $227.1 Mn in FY15 to $382.3 Mn in FY19, and net income improved from $241.9 Mn in FY15 to $326.0 Mn in FY19. Full year profits have been anticipated to lift in line with growth in the build programme, and construction is targeted to be under way at 12 sites by the month of March 2020. The company’s medium-term target is expected to double its underlying profit every five years, which is ~15% increase each year.

Historical Performance for FY15-19 (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 35.19% of the total shareholding. Cumming (Geoffrey Alexander) and Hickman (Kevin James) are holding maximum interests in the company at 10.19% and 7.00%, respectively (as shown in the table below).

Top 10 Shareholders (Source: Thomson Reuters)

A Quick Look at Key Metrics: Its EBITDA margin and net margin for H1FY20 stood at 18.8% and 90.6%, better than the industry median of 9.0% and 3.4%, respectively, implying decent fundamentals for the company. Moreover, better net margin reflects that the company is possessing better capabilities to convert its top line into bottom line as compared to the broader industry.

ROE for H1FY20 stood at 8.4%, better than the industry median of 6.8%, which implies that the company generated a better return for its shareholders than its peer group and there is might attract the attention of the market participants moving forward.

Key Metrics (Source: Thomson Reuters)

Half Yearly Performance for The Period Ended September 30, 2019: Unaudited first half underlying profit increased by 6.2% to $103 million, mainly due to record resales volumes. Reported (IFRS) profit (inclusive of unrealised fair value gains on investment property) increased by 11.1% to $188.3 million. Cash generation stood stronger in the first half, where operating cashflows increased by 17.6% to $256.1 million. The balance sheet of the company has strengthened further, and its total assets witnessed an increase of 17.4% from September 2018 to $7.26 billion, which implies the value created by ongoing development as well as strong demand. Other payables as on September 30, 2019, was reported at $105.4 million for the purchase of land, as compared to $19.6 million as on September 30, 2018. The Board of Directors declared an interim dividend of 11.5 cents per share, in-line with the increase in underlying profit.

Half Yearly Income Statement (Source: Company Reports)

FY19 Key Highlights for The Year Ended March 31, 2019: Underlying profit (non-GAAP) for FY 2019 was reported at $227.0 million, as compared to $203.5 million in the previous year. The reported net profit after tax for the full year period was reported at $326.0 million. The company’s operating cashflows increased by 15% to $401.4 million, and its cash receipts from residents exceeded $1 Bn for the first time.

FY19 Income Statement (Source: Company Reports)

Appointment of Chief Development Officer: On January 17, 2020, the company announced the appointment of Jeremy Moore as Chief Development Officer. Mr. Moore joined RYM’s development team in 2012 and, as per the release, has been Acting Chief Development Officer since the month of May 2019.

What to Expect: As per the release, the second half of financial year 2020 has been anticipated to be better and stronger as the build programme progresses. In addition, the company signed up as Alzheimers New Zealand’s lead partner for the next three years, and more than 1,200 of RYM’s staff signed up to become dementia friends. It has also entered the Alzheimers New Zealand Dementia Friendly Programme, with a mission to combat stigma and to change hearts and minds about dementia.

The company continues to trial new ways to improve the experience of its residents who live independently with it. Under its Ryman Delight, the trial is being run at each village, by a concierge who arranges trips to the theatre, concerts or sporting events, etc as well as weekends away. Additionally, the company has introduced village hosts in the evenings at some of its larger villages.

The company expects to provide homes and care for more than 20,000 people on development of its existing land bank over the coming years. It is targeting to achieve a build rate of 900 units and beds for FY20, as compared to 757 in FY19.

RYM recently submitted its tenth development application in Victoria, and the company stated that five development approvals were already granted, and the company is targeting to have five villages open in Victoria by the end of the calendar year 2020. The full year underlying profits have been anticipated to be in the range of $250 million to $265 million.

Key Valuation Metrics (Source: Thomson Reuters)

Technical Analysis:

Monthly Chart:

(Source: Thomson Reuters)

Weekly Chart:

(Source: Thomson Reuters)

On both monthly and weekly timeframe chart, the stock is trading above 20 EMA, 50 EMA and 200 EMA, indicating strong bull trend. On monthly chart, with long term perspective, the stock is expected to test the resistance level at ~$17.22 (Fibonacci Projection level of 23.6%) and second resistance level at ~$18.2153 (Fibonacci Projection level of 38.2%) after a short-to-mid-term correction. On price correction, it will find initial support around $15.60 followed by strong support around $14.60.

Note: EMA – Exponential Moving Average

Stock Recommendation: RYM’s stock posted a positive one-year return of 57.35%, and in the span of six months the stock generated a return of 27.83%. Considering the company’s business model on old-age care, H1FY20 performance, FY19 results, decent profitability ratios, and FY20 guidance, we are affirmative on the stock. Hence, we give a “Buy” recommendation on the stock in view of price by book value indication for peers at the current market price of $16.190 per share, down by 1.82% on February 3, 2020 and expect single-digit upside.

RYM Daily Technical Chart (Source: Thomson Reuters)

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