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Healthcare corporates catch the hiccups in share prices

By Peter V O'Brien

Friday 25th August 2000

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The companies specialising in retirement villages, care facilities for the elderly and general healthcare have lost some of their investment shine in the past six months.

Share price data is in the table, which also compares the prices on Monday with those on February 23, when The National Business Review last examined the sector.

Eldercare and Metlifecare suffered most, although the former company increased the number of shares substantially during the period.

Eldercare reported last week on the year ended May 31. Net profit of $5.6 million was 35% ahead of the $4.1 million forecast in May 1999 when the company unveiled its plans to change from petroleum exploration and investment, under the former New Zealand Petroleum, to a provider of retirement care.

Chief executive Alan Clarke said the result represented a significant improvement in earnings for the second six months.

Profit increased from $2.2 million in the first half to $3.4 million in the second.

Revenue went from $9.98 million in the first half to $15.8 million in the six months ended May.

The result had little effect on the share price, as shown in the table.

It is rather ironic Eldercare issued 14.07 million shares to institutional and professional investors at 51c a share in March, the success of which Mr Clarke said reflected increasing institutional interest in the company and "appreciation of the growth sector in which it operates."

Institutions must be in for the long haul unless they reduced their holdings since the issue date.

Mr Clarke said the company began to "further evolve" its growth strategy in the second half, seeking investment opportunities in related healthcare areas.

Eldercare provided accommodation for more than 900 residents in 11 nursing homes and hospitals and four retirement villages, the latter including one under construction.

The company diversified into related healthcare areas since balance date, buying 67% of Ranworth Healthcare, the country's largest brain injury assessment and rehabilitation services provider.

Metlifecare held its annual meeting in June. Shareholders were told a lower profit for the year ended December when compared with 1998 was not unexpected and was foreshadowed in the 1999 half-year report.

The company said it operated in a sector which was growing rapidly and which "presented a number of challenges" during the year.

They included external factors such as the election and rising interest rates, both of which slowed sales in the residential housing market.

There was also an increase in the number of entrants into Metlifecare's industry.

Changes in government policy also challenged the industry, including the encouragement of people to stay in their current accommodation rather than moving to a care facility.

There was an interesting indirect link between Metlifecare and Eldercare, apart from the fall in their share prices over the past six months.

Investor Eric Watson bought more than 10% of Metlifecare last year and is also the major shareholder in Eldercare.

Mr Watson said in June he was not looking for a merger of the two companies at that time but apparently did not rule out the possibility at some future date if it seemed appropriate.

Metlifecare has two main shareholders, Todd Capital with 35% and the company's founder Clifford Cook with 37%. Chairman Peter Fitzsimmons told the annual meeting the commitment of the two shareholders provided ownership stability for the next five years.

The company changed its dividend policy this year and did not pay a final dividend after an interim of 1.5c a share in October.

Mr Fitzsimmons said the change reflected the directors' view that, in the medium term and with the company's focus now on future growth, shareholder value was best enhanced through deploying surplus funds to pursue a targeted growth strategy.

Changing a dividend policy can affect a company's share price, as seen in the reaction to Telecom's signal of lower dividends in future as the telecommunications group moved from a yield stock to a capital growth investment.

The other two companies in the sector, Calan Healthcare Properties Trust (specialising in health centres and hospitals rather than retirement villages and rest homes) and Ryman Healthcare have done better than Eldercare and Metlifecare in terms of share price over the past six months.

Ryman reported in June for the year ended March. Net profit more than doubled from $6.19 million in 1999 to $12.56 million.

The company listed on the Stock Exchange last year after the issue of 80 million shares.

The preliminary report was optimistic about the future, despite strong competition in the sector and said all the group's retirement villages were performing well.

Calan had yet to report on the year ended June when NBR went to press but had a good first half. The sector is in good shape fundamentally but investors seem to have gone off it.

E-Ventures: An article last week on new floats said E-Ventures' shares were issued at 50c each. I have been advised they were issued at 60c.

Retirement sector share prices

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