By Jenny Ruth
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Thursday 26th May 2011 |
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Ryman Healthcare's better-than-expected 17% rise in underlying profit for the year ended March reaffirms the company's investment attractions, says David Oxley at Craigs Investment Partners.
"Our model suggests that as the existing portfolio matures, even relatively conservative asset price inflation assumptions result in attractive rates of growth in underlying profit and operating cashflow and a DCF(discounted cashflow)-derived intrinsic value estimate above the current share price," Oxley says. He values the shares at $2.95.
Ryman's $72.1 million reported net underlying profit ($100 million including capital gains) compared with Oxley's $71.5 million forecast.
"While sales of existing units were marginally below our estimates, new unit sales were ahead of expectations and development margins were maintained above 20%."
Oxley has raised his forecasts for Ryman to reflect both the strong result and management's decision to up its build rate from 450 beds a year to 550 beds.
He is forecasting net profit including capital gains in the year ending March 2012 will be $108 million, rising to $122 million the following year and to $129 million in the year ending March 2014. "The key risk to our forecast is the underlying asset price inflation assumed. Our base case is 3% per annum nominal growth throughout the forecast period."
Recommendation: Buy.
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