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Temperatures rise in health sector

By Peter V O'Brien

Friday 17th October 2003

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What a difference six months can make to a sector's share prices.

Retirement and healthcare companies' share prices were depressed in April compared with the situation in October 2002.

Abano Healthcare (Eldercare) was down 23.8% from October, 2002, Ryman Healthcare 9.5% and Wakefield Hospital showed no change. Metlifecare had improved a modest 2.7%.

Prices on October 10 are in the table, which excludes Calan Healthcare, because the company has correctly advised The National Business Review that it should be treated as a property company. Calan owns properties it leases to healthcare providers.

The New Zealand sharemarket was idling along a year ago but its improvement in the past 12 months was behind that of companies in the healthcare and retirement sector.

Gains since last October were 4.8% for Abano, 66.4% for Metlifecare, 22% for Ryman and 34.8% for Wakefield.

Abano justified its recent restructuring programme, which involved disposal of non-core assets, including properties unrelated to the company's basic business in healthcare.

Group net profit for the year ended May 31 was $2 million, including $927,000 after tax and unusual items related to sale of property and a deferred tax gain.

The result was a notable improvement on the $2.82 million deficit in the previous year, which recorded $2.2 million of unusual losses.

A more realistic comparison was the operating surplus (deficit) before unusual items and tax, which was $1.47 million in 2003 and a loss of $255,000 in 2002.

The market has yet to be fully convinced that Abano is on a growth path.

A comment in the preliminary final report noted there was a "successful renegotiation of existing and new [sic] ACC contracts and a strong increase in Ministry of Health rehabilitation contracts." Lack of a dividend could be another reason for investor coolness.

Abano impresses as a recovery punt from a low base share price with relatively low downside risk, provided the restructuring sticks and does not lead to forays again into areas unrelated to the main business.

Metlifecare's price got a boost after the company reported in August on the six months ended June. Net profit increased 53% to $6.28 million, compared with $4.1 million in the corresponding period of the previous year.

The interim report referred again to the demographics noted when NBR considered the retirement and healthcare sector on April 17.

Chairman Peter Fitzsimmons said Metlifecare was realising the potential of the demographics that pointed to the retirement industry as an attractive proposition for business growth and investment.

"Most notably resales volume and value exceed the prior period results. During the six-month period there were 115 resales with a value of $23 million in 2003 compared with 94 resales with a value of $17.6 million in 2002."

Metlifecare has done well, irrespective of that point, considering the shares sold at 90c in 2001, the low for that year. There could be more upside in the stock as the company continues to overcome the setbacks of past years.

Ryman Healthcare is also moving ahead. The company says it provides homes and care services to more than 2000 people and employs 1000 staff in its 12 retirement villages, soon to increase to 14.

Profit for the year ended March 31 was 38.3% up on the previous year at $15.13 million.

The 2004 interim report should be available in November.

There was an improvement in share liquidity recently after a selldown by a former shareholder and a consequent increase in shareholder numbers.

Wakefield Hospital has benefited from the increase in numbers opting for private medical and surgical attention as public hospitals grapple with unconscionable waiting lists and impose playing-God assessment systems.

The company was another to face problems, particularly over earlier profit forecasts.

Profit for the year ended March 31 increased 16% to $783,000 after absorbing $258,000 in unusual costs associated with a Securities Commission inquiry into the company's prospectus and listing.

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