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First NZ Capital lifts Oceania Healthcare to 'outperform', 12-month target price +12%

Friday 27th July 2018

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First New Zealand Capital lifted its rating on Oceania Healthcare to 'outperform' from 'neutral' after the aged care company announced an updated development pipeline and better embedded value growth.

Analyst Andrew Steele said the development momentum supports confidence in the pipeline and the change reflected the company's "potential valuation upside". He also lifted the 12-month target price to $1.22 from $1.06. 

The stock last traded up 0.9 percent to $1.12 and has lifted 5.7 percent so far this year. 

Yesterday, the company reported its net profit rose to $77 million in the year ended March 31 from $44.9 million in the prior period. Underlying earnings, which includes pro-forma adjustments, rose 53 percent to $52.1 million. Both figures beat forecasts in its initial public offering document for last year's listing. It also increased its forecast future build rate from 200 beds and units indicated at the time of the IPO to 250 per annum over the next three years to May 31, 2021, increasing further to at least 300 from 2022 onwards.

Chief executive Earl Gasparich told BusinessDesk that the pipeline was around 1,700 and now that it has acquired a number of neighboring properties among others "we have increased our development pipeline by around 30 percent to about 2,100". He said it would be built out over the next seven years and more than 60 percent is consented.

"The plan is shaping up well," said Gasparich. 

First NZ's Steel said "we welcome the successful delivery of developments which are in-line with expectations and the announcement of further increases to the new build pipeline."

He also said the embedded value increased by 12 percent from the first half to $210.9 million, largely on deferred management fees.On a per unit basis it grew 38 percent, reflecting the benefit of the portfolio migrating to the standard contractual terms and higher price points for the sale and resale of units.

Steele noted that Oceania also recorded a strong revaluation gain on investment properties, up $68.3 million. 

He said that key catalysts for Oceania's ongoing re-rating include delivery on brownfields and greenfields development, maintenance of the free cash flows from its care business and maintenance of a robust balance sheet.


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