Ryman’s new site in Melbourne, with the purchase announced on Friday. Photo / Ryman Healthcare
New Zealand’s largest listed retirement business with around $11 billion of assets could set an all-time record development rate, eclipsing work streams since being founded 25 years ago.
Yet Ryman Healthcare is also trading at
a decade-low valuation of 1.5 times net tangible assets.
Those are the observations of Craigs Investment Partners’ research experts, doing a post-results analysis of the company whose full-year profit was out on Friday, up an astonishing 64 per cent.
“Ryman did not provide earnings guidance for FY23, but did guide for a build rate of about 1000-plus units and beds, a big step up from 706 units and beds completed in FY22 which, if delivered, will be an all-time record,” said the analysis headed Aussie business comes of age.
Stephen Ridgewell and Rob Morrison said Ryman’s outlook was underpinned by a record level of sales enquiry and an increasingly diverse build programme. The company is now working at 16 sites here and in Australia, compared with 12 last year.
“Ryman also signalled it plans to further increase resale prices in the year ahead, despite house prices softening, reflecting that Ryman units are still priced at a wider than normal discount to local house prices,” the analysts said.
Ryman beat expectations when it announced $692.9m audited reported net profit after tax in the full year to March 31, 2022, up on last year’s $423.1m.
Yet the analysts also noted the extremely low share price.
“While we acknowledge the business still faces challenges, notably high gearing and a softening trading environment, we believe these concerns are in the price with the shares currently trading at a decade low valuation of 1.5x NTA.
“We are encouraged by the improved performance of Ryman’s Australian segment in 2H22, which supports our conviction that Ryman will ultimately succeed in that market and helps underpin our positive investment view,” the Craigs’ analysts said.
The 2023 full-year adjusted net profit after tax is forecast to be $292m, rising to $348m in 2024 and $409m by 2025, whereas gearing is forecast to fall from 42 per cent to 41 per cent between 2023 and 2025.
In a Herald post-results phone call, chief executive Richard Umbers disclosed Ryman’s development margin is a spectacular 24.3 per cent which is the difference between the cost of building new townhouses and apartments in Ryman’s villages, and what they are first sold for.
Any value that a valuer attributes to the unit above this is included in the unrealised valuation gain and excluded from underlying profit.
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As well as development margins, Ryman makes money time and time again as people in its villages move between care stages and properties are sold and resold over and over.
Asked how much harder and more expensive construction was on its 16 live sites, Umbers remained upbeat: “Obviously there are cost pressures, although in Australia not quite as intense as New Zealand. We do have that vertical integration model on Australia developments too. Our development margin is 24.3 per cent.”
Macquarie Research also noted Friday’s result was ahead of expectations and “despite Covid costs and disruption”. It has an outperform on the stock.
“Key positives include lifting land bank, smaller care developments go forward, strong margins, NTA growth and external board review. Ryman has pulled back a long way and we don’t believe the business model is broken and structural tailwinds for the sector remain,” wrote Nick Marr in Australia.
Forsyth Barr’s Aaron Ibbotson and Matt Montgomerie have a neutral rating on the stock but said it was encouraging to see the company benefiting from what appears to be a more assertive pricing strategy under new management.
Ryman has a new CEO and a new chairman.
Jarden’s Andrew Steele and Nick Yeo said net profit after tax was 7 per cent ahead of their forecasts. Development guidance of 1000-plus beds and units was in line with their expectations, they said.
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Buying new sites at Christchurch’s Rolleston and in Melbourne’s Coburg North would add 791 beds and units to the company’s pipelines, bringing the total amount of work planned to 6734 new units and beds, the Jarden analysts noted.
Ryman had spent around $50m on anti-Covid pandemic measures in 2020 and Umbers said In the Friday Herald interview that a further figure of $21m appeared in the latest accounts “but the costs are not just more PPE gear of changes in shifts. They’re the delay in the development programme and other costs which are very, very difficult to manage.”
Chief operating officer Cheyne Chalmers said: “We’ve had around 20 per cent of our great team members get Covid.”
Ryman employs around 6000 staff so that equates to around 1000 staff who have contracted the virus.
Asked how many residents had died of it, Chalmers said: “It’s been incredibly tough and across all the New Zealand residences, about 600 have come through with Covid and that’s been flexing up and down.”
Asked about the number of Ryman Covid fatalities, Chalmers that was hard to answer: “We have had people who have passed away who have had Covid but they didn’t necessarily die of Covid. Mortality rates have not necessarily been any higher than they would normally be. We don’t have a firm number on that”.
David King, corporate affairs manager, said many of those Ryman residents with Covid were already in end of life or terminal care.
UBS has a 12-month price target of $10.90 on the shares, but they are now only trading around $9.60. On Thursday, they were only $9.14 but shot to $9.85 on Friday post-results announcement.
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