Restrictions lift on Oceania Healthcare 57% stake this Friday; may create overhang

Photo by Lynn Grieveson

A majority stake in Oceania Healthcare may come into play after the aged care and retirement village operator reports its 2018 annual result after just over a year as a publicly traded company.

The Auckland-based company is scheduled to report full-year earnings for the 12 months ended May 31 on Thursday. Under the conditions outlined in its initial public offering, a 57 percent stake in the company held by Macquarie Group managed funds and senior managers will be able to be sold from Friday when the escrow period ends. Macquarie didn't immediately respond to a request for comment.

Oceania and other New Zealand retirement village operators are expanding their businesses to benefit from increased demand as people born in the country's post-war era reach the target age for operators. Oceania's stock recently traded at $1.11, ahead of the 79 cent offer price and lifting the value of the 57 percent holding by $112 million to $388 million since it listed in May last year.

Hamilton Hindin Greene director Grant Williamson said some investors may be cautious when the escrow period expires and the shares are available for selling, which could create an overhang in the market.

"It does free up the holder to sell if they want to but it really comes down to what they intend doing. It's impossible to know until we hear from Macquarie what their intentions might be," Williamson said. "The market may just take it in its stride until there is a clearer picture on what the large holder might consider doing."

In May, Oceania said it was on track to lift underlying earnings by at least 51 percent and meet forecasts in its initial public offering document, with strong demand for its aged care suites. That implies annual underlying earnings will rise to at least $51.4 million from the $34 million reported in 2017. Oceania more than doubled underlying earnings in the first half of the year to $19.9 million, and almost doubled net profit to $42.5 million as its investment property grew in value and it sold more retirement village units.

"The company has done everything they said they were going to achieve so it will be interesting to see the mix of earnings and also how their developments are going," said Hamilton Hindin Greene's Williamson. Investors will also be interested in the company's guidance on the outlook, he said.

Among analysts polled by Reuters, one rates Oceania as a 'buy', and three rate it a 'hold', and the stock has a median target price of $1.07.