Yovich & Co. Market Update - 16 September 2019

Sep 15, 2019 | Commentary

Market News

 

 

In summary, last week saw the NZX50 with 33 companies on the downside, 12 companies on the upside and 5 unchanged. The NZD was weaker against both the AUD and USD -1.25% and -0.80% respectively. The NZX50G reached a new record high on 9 September at 11222.31, closing Friday lower at 10863.

 

 

Investment News

New Zealand Equities

Listed Retirement and Rest Home Villages

Retirement villages offer independent and assisted living options where residents enjoy privacy and freedom in their own home, with the option of additional care should they choose to request it. Companies that have a higher portion of their assets in this sector are considered growth stocks as their income is generated from the resale of the independent living apartments/units. The Share prices are sensitive to housing prices as there is a high correlation to the housing market.

 

Rest homes offer a very specific and important service care for those who are no longer in a position to solely care for themselves. Companies that have a higher portion of care apartments are less affected by house price volatility as a greater portion of revenue is created through the services they offer.

Most Health Care Facilities offer both services. We look at the ratio of Independent Living Units/Apartments to Care Apartments to decide which sector the company is more suited to.

 

 

 

 

 

*Ratio of residents is care beds total residents dividend by number of care beds

These companies all fall under the Health Care Facilities industry.

Ryman Healthcare Limited

Is the largest provider of retirement living options for New Zealanders over the age of 70. The company provides a range of retirement living and care options, including independent townhouses and apartments, serviced apartments and care centres providing rest home, dementia and hospital-level care, with villages in NZ and  Australia.

 

Ryman is a well performing company listing in 1990 at a cost of 28 cents and is currently trading at $13.15. This has provided an outstanding return to the early investors. We view this as a long term hold for a portfolio due to outstanding performance. At these levels it looks relatively expensive compared to other companies in this sector, and would consider a buy between $11.50 -$12.50.

Metlifecare

 Was established in 1984; it currently owns and operates a portfolio of 25 villages in areas with strong local economies, excellent growth rates and high median house prices, and are located predominantly in New Zealand’s upper North Island.

 

 At the current share price it is trading below NTA and at a 45% discount to the target. Research shows that Metlifecare has not met expected forecasted build rates and has an increase in building costs (not being able to be passed on to new residents). These factors lower investor’s confidence, thus decreasing the share price. At current share price we see this stock as a possible investment to add to the portfolio.

Summerset Group

Is the third largest operator and the second largest developer of retirement villages and aged care facilities in New Zealand. Summerset is one of the few retirement village operators to provide a continuum of care at its villages.

 

It has a very similar number of independent and care apartments as Metlifecare.

Oceania Healthcare

 Provides aged care and retirement village services, offering residents villas and apartments within its retirement villages, and also providing a full range of residential aged care services (including rest home, hospital and dementia level care) at its aged care facilities. Oceania is currently New Zealand's third largest provider of residential aged care, and New Zealand's sixth largest retirement village business.

Oceania has the highest dividend yield at 4.61% in the industry, providing investors a source of income.

Arvida Group

 Is an aged care provider, owning and operating 29 retirement villages located nationally. Each village operates independently under a corporate structure that supports village operations to ensure quality and consistency of service. Arvida provides over 4,000 residents with a continuum of care that extends from independent living to full rest home, hospital and dementia-level care.

Arvida has very promising growth opportunities in the rest home sector. The acquisition of the Bethlehem Country Club, Bethlehem Shores and Queenstown Country Club, will provide opportunities for over 500 new homes including care facilities in Tauranga and Queenstown. It is currently trading at a 23.40% discount to target price. 

 

*Summerset figures are 1HFY19 unless otherwise stated

Disclaimer: This publication has been prepared for your general information. While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken for any errors or omissions. This publication does not constitute financial or insurance product advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. No part of this publication may be reproduced without prior written permission from our company. Disclosure statements relating to the financial advisers associated with this newsletter are available on request and free of charge.

 

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About the author



Nathanael McDonald



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Weekly Update Investment Shares Bonds Investment Strategy Investment Advice Share Advice Share Investment Investing in Shares Ryman Healthcare Ltd RYM.nz Metlifecare MET.nz Summerset Group SUM.nz Oceania Healthcare OCA.nz Arvida Group Ltd ARV.nz



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