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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Oceania Healthcare (OCA)</h2>
1H20 result – initial thoughts
OCA has reported a result slightly stronger in most areas than we were forecasting, in particular&nbsp;in terms of&nbsp;operating costs and margins.
1H20 underlying net profit after tax (NPAT) which strips out unrealised revaluation gains and deferred tax was NZ$24.1m, up +17.6%, slightly ahead our forecast of NZ$22.9m. OCA lifted its interim dividend by +10% from 2.1 cps to 2.3 cps, representing a 58% pay-out ratio of Underlying NPAT for the period. Gearing lifted slightly to 31.8% and the NAV is up slightly from NZ$1.14 at FY19 to NZ$1.15.&nbsp;Operating cash flow was strong at NZ$57m, up +21%.
Realised development gains were NZ$18.7m, up on the NZ$9.9m in the pcp and our forecast of NZ$16.1m and boosted by very strong development margins of 36% compared to our forecast of 30%&nbsp;and 29.5% in the pcp. 85 units and care suites were sold in the half compared to 65 in the pcp.&nbsp;OCA’s development margin benefitted from high pricing in Auckland with average apartment pricing of NZ$1.2m at The Sands in Browns Bay and Meadowbank and low land pricing given the length of time it has owned both sites.&nbsp;Underlying care revenues were steady, as was occupancy at 94%, while Care EBITDA declined on higher operating costs.
In 1H20 OCA completed 90 care suites in Hamilton and 10 villas in Whitianga and started its 49 apartment extension at Eden in Auckland. It has indicated it is on track with its build guidance of 265 units and beds in FY20. There was no earnings guidance was provided.
Underlying care revenues were steady, as was occupancy, while Care EBITDA declined on higher operating costs.
1H20 result summary
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 141.8pt;">
Underlying earnings (excludes unrealised gains)
</td>
<td style="width: 44.8pt;">
1H19
</td>
<td style="width: 44.8pt;">
1H20
</td>
<td style="width: 44.8pt;">
Change
</td>
<td style="width: 44.8pt;">
Forbar
</td>
</tr>
<tr>
<td style="width: 141.8pt;">
Underlying revenue
</td>
<td style="width: 44.8pt;">
116.4
</td>
<td style="width: 44.8pt;">
124.8
</td>
<td style="width: 44.8pt;">
7%
</td>
<td style="width: 44.8pt;">
124.7
</td>
</tr>
<tr>
<td style="width: 141.8pt;">
Underlying EBITDA
</td>
<td style="width: 44.8pt;">
27.1
</td>
<td style="width: 44.8pt;">
34.1
</td>
<td style="width: 44.8pt;">
26%
</td>
<td style="width: 44.8pt;">
30.5
</td>
</tr>
<tr>
<td style="width: 141.8pt;">
Underlying profit
</td>
<td style="width: 44.8pt;">
20.9
</td>
<td style="width: 44.8pt;">
24.1
</td>
<td style="width: 44.8pt;">
15%
</td>
<td style="width: 44.8pt;">
22.9
</td>
</tr>
<tr>
<td style="width: 141.8pt;"></td>
<td style="width: 44.8pt;"></td>
<td style="width: 44.8pt;"></td>
<td style="width: 44.8pt;"></td>
<td style="width: 44.8pt;"></td>
</tr>
<tr>
<td style="width: 141.8pt;">
Operating cash flow
</td>
<td style="width: 44.8pt;">
47.1
</td>
<td style="width: 44.8pt;">
57.0
</td>
<td style="width: 44.8pt;">
21%
</td>
<td style="width: 44.8pt;"></td>
</tr>
<tr>
<td style="width: 141.8pt;">
EPS (cents)
</td>
<td style="width: 44.8pt;">
3.4
</td>
<td style="width: 44.8pt;">
3.9
</td>
<td style="width: 44.8pt;">
15%
</td>
<td style="width: 44.8pt;">
3.8
</td>
</tr>
<tr>
<td style="width: 141.8pt;">
1H DPS (cents)
</td>
<td style="width: 44.8pt;">
2.1
</td>
<td style="width: 44.8pt;">
2.3
</td>
<td style="width: 44.8pt;">
10%
</td>
<td style="width: 44.8pt;">
2.3
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis
Jeremy Simpson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
M: +64 21 995 998 | P: +64 9 368 0022 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Oceania Healthcare (OCA)
1H20 result – initial thoughts
OCA has reported a result slightly stronger in most areas than we were forecasting, in particular&nbsp;in terms of&nbsp;operating costs and margins.
1H20 underlying net profit after tax (NPAT) which strips out unrealised revaluation gains and deferred tax was NZ$24.1m, up +17.6%, slightly ahead our forecast of NZ$22.9m. OCA lifted its interim dividend by +10% from 2.1 cps to 2.3 cps, representing a 58% pay-out ratio of Underlying NPAT for the period. Gearing lifted slightly to 31.8% and the NAV is up slightly from NZ$1.14 at FY19 to NZ$1.15.&nbsp;Operating cash flow was strong at NZ$57m, up +21%.
Realised development gains were NZ$18.7m, up on the NZ$9.9m in the pcp and our forecast of NZ$16.1m and boosted by very strong development margins of 36% compared to our forecast of 30%&nbsp;and 29.5% in the pcp. 85 units and care suites were sold in the half compared to 65 in the pcp.&nbsp;OCA’s development margin benefitted from high pricing in Auckland with average apartment pricing of NZ$1.2m at The Sands in Browns Bay and Meadowbank and low land pricing given the length of time it has owned both sites.&nbsp;Underlying care revenues were steady, as was occupancy at 94%, while Care EBITDA declined on higher operating costs.
In 1H20 OCA completed 90 care suites in Hamilton and 10 villas in Whitianga and started its 49 apartment extension at Eden in Auckland. It has indicated it is on track with its build guidance of 265 units and beds in FY20. There was no earnings guidance was provided.
Underlying care revenues were steady, as was occupancy, while Care EBITDA declined on higher operating costs.
1H20 result summary




Underlying earnings (excludes unrealised gains)


1H19


1H20


Change


Forbar




Underlying revenue


116.4


124.8


7%


124.7




Underlying EBITDA


27.1


34.1


26%


30.5




Underlying profit


20.9


24.1


15%


22.9











Operating cash flow


47.1


57.0


21%





EPS (cents)


3.4


3.9


15%


3.8




1H DPS (cents)


2.1


2.3


10%


2.3




Source: Forsyth Barr analysis
Jeremy Simpson &nbsp;CFA Director / Senior Analyst, Equities Forsyth Barr Limited
M: +64 21 995 998 | P: +64 9 368 0022 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Oceania Healthcare (OCA): 1H20 Result – Initial Thoughts