Analysts have trimmed their expectations for Tourism Holdings. Photo / Supplied
Ryman Healthcare has just tapped the market for more capital, raising the question: who is next?
In outlining reasons for the $1 billion capital raise, Ryman – New Zealand’s biggest retirement village company – said it faced ongoing challenges, including an illiquid housing market and elevated industry stock levels.
The capital raise was large by market standards, and was Ryman’s biggest ever – following closely on the heels of its $902 million capital raise two years ago.
The latest offer was underwritten by Craigs Investment Partners, Forsyth Barr Group Limited and Jarden Partners. The retail segment got under way yesterday and winds up on March 10.
As the economy struggles to shake off a long and deep recession, it would not be the only company on the market to be looking at its balance sheet.
BusinessDesk reported in January that the retirement village sector may tap investors to fund growth.
At the time, the news service quoted from a report by Jarden analysts Arie Dekker and Vishal Bhula who said they were keeping an eye on how Ryman and Summerset adjusted their capital management settings.
Summerset, the country’s second-biggest retirement village company, releases its annual result today so all eyes will be on how the company intends to fund its ambitious plans for expansion in Australia.
In a note out this week, Jarden said Summerset’s capital management would be to the fore.
“With the market having slowed down in New Zealand and Summerset currently not getting the equity boost associated with above-trend growth, we believe Summerset is currently capital-constrained on growth in Australia,” it said.
Jeremy Sullivan, investment adviser at Hamilton Hindon Greene, said debt will become a key issue for the retirement village sector – not just Ryman – because of its strong link to a struggling residential real estate market.
“This is a sector-wide issue and downturn,” Sullivan said.
He said Arvida, whose shares were delisted from the NZX last October, and Metlifecare (delisted 2020) still have debt trading on the NZX trading platform.
He said Ryman’s capital raise would give it “a long enough runway”.
Summerset’s share price has dropped about a dollar over the last week but it’s been strong in recent years, while Ryman’s has been weakening for some time now.
“The Ryman business model is a leveraged play on increasing property prices,” Sullivan said.
“The outcome of money printing during Covid led to rampant house price increases, followed by a sharp correction, so where did Ryman go wrong?
“They were caught up in the worst housing market in four decades with a business model which requires a stable property market, and they have just not had it,” he said.
“Their business model has a larger level of intensified living, as opposed to the individual units, which is what separates them from the likes of Summerset – 80% independent living and 20% more intensified, multi-storey buildings.
“It’s the reverse for Ryman, particularly in Australia.
“Of course, if you are building a massive 150m-long, three-storey building you can’t start selling off units until the building is done, as opposed to the independent stuff which you can start selling as soon as they are finished.”
Analysts have trimmed their target price expectations for Tourism Holdings but remain upbeat that the company is on track to benefit from an economic recovery - even if the timing of that is still uncertain.
The campervan rental and sales company’s half-year net profit after tax (npat) fell 36% to $25.3 million compared to the prior corresponding period (pcp).
Forsyth Barr’s Andy Bowley and Hugh Lockwood said while THL’s first half result was disappointing, its New Zealand operations were performing well and generating attractive returns.
“Management remains hopeful that FY25 underlying npat can exceed the prior year; a view predicated on improving vehicle sales demand, particularly in the seasonally important fourth quarter for North America.
“We are less optimistic for 2H25. While we lower our forward earnings expectations throughout our outlook period, we remain attracted to the discount that THL trades at relative to its net tangible assets (NTA) and to its proven earnings potential.”
Bowley and Lockwood said the key catalyst for the business’ re-rating would be a turnaround in the vehicle sales market. The pair cut their target price from $3.45 to $3.35 but still have an outperform rating on the stock.
Meanwhile, Jarden’s Grant Lowe and Zachary McIntyre described the result as “reasonable in context”.
THL previously signalled that 1H25 earnings would be well below the pcp given the slowdown in vehicle sales and noting a tough comparable first half in 2024 when vehicle sales and margins were still going well.
The pair lowered their target price from $4.38 to $4.21 based on their view of a slower path to macroeconomic recovery.
But they maintained a buy rating based on the company’s dominant market position in Australia and New Zealand and increasing confidence on the sustainability of rental yields.
“Our valuation is underpinned by THL’s $100m npat target – in our view an achievable target but with uncertainty on timing and path (FY28) in our forecasts.”
The company has a long way to go to meet either target prices.
Its shares opened on $1.76 yesterday.
Comvita’s balance sheet is in the spotlight after the company revealed it was in breach of its banking covenants and had no waivers in place yet.
The honey exporter this week reported a net loss after tax of $6.5m for the six months to the end of December, which included one-off restructure costs. It is reducing overall headcount by 67, scaling back senior leaders by four and cutting two board directors.
The restructure followed reports of accounting regularities in December, with the company recently admitting to overstating its after-tax profits by $4m for the 2023 and 2024 financial years. That prompted an independent accounting review.
Chief executive Brett Hewlett assured investors Comvita had taken measures to correct, tighten controls and restructure the organisation but said the company was still in discussions with its banking syndicate.
That was because its current financial performance didn’t enable the business to achieve confidence from the syndicate.
An update is expected to be made by the company before the end of March.
Jarden’s Guy Hooper and Nick Yeo maintain a neutral rating on the stock but with a high-risk caution.
“There are signs of a stabilising backdrop emerging for CVT, with sales expected to be flat in the 2H, gross margin having found an apparent floor, meaningful reductions in inventory, and self-help initiatives set to drive earnings improvement.
“However, the level of market damage from discounting is unknown and with a balance sheet that remains under watch, we see the investment case as carrying elevated risk.”
They have a target price of 80c. Comvita shares opened on 75c yesterday .
Additional reporting: Tamsyn Parker
Jamie Gray is an Auckland-based journalist covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
A small widely-used device can have a complex, multi-country manufacturing process.