New Zealand's listed aged-care sector is about to benefit from a rapid increase in the 75-and-over demographic, Forsyth Barr broker Peter Young says.
''There is a favourable industry structure where successful operators can self-fund development of villages and care facilities and recycle capital for future development.''
The shortage of quality aged-care beds would mean demand remained strong for operators with an integrated model that also offered high-quality care, he said.
Forsyth Barr had a positive investment view on all three listed operators with all either offering fully integrated villages or moving in that direction.
Ryman Healthcare and Summerset operate in Dunedin and other New Zealand centres. Metlifecare is North Island-based.
Mr Young said Ryman remained the market leader for consistent earnings growth.
Summerset had a successful first 15 months as a listed company and was rapidly growing its business. The market was expecting it to continue to deliver at a high level.
Metlifecare remained a ''turnaround story'' with significant potential if it could execute more effectively, in particular with its return to development activity and a refocus on an integrated village offering.
''A risk for Summerset and Metlifecare is that Ryman makes the delivery of long-term consistent earnings growth look easy when it is rare across any market,'' Mr Young said.
Aged care was a significant sector in the New Zealand listed market. That had been driven by the continued growth of Ryman, a strong performance by Summerset and a turnaround in sentiment towards Metlifecare. The total sector had a weighting of 6.9% of the NZX compared with a current weighting of 10.1% for the listed property sector. Total retirement assets listed in New Zealand would go above $4 billion this year.
The ageing population story was not new for investors, Mr Young said. However, it was interesting to note investors were close to seeing the story start to unfold.
The percentage of the population older than 75 had been relatively flat since 2006. From about 2014 there was a steep climb in the forecast age over 75 that did not level off until about 2046.
In that period, the percentage of the population aged 75 and older was forecast to more than double from 6% of the population to 14% or from 281,000 to 795,000.
Statistics New Zealand had performed some scenario analysis based on lower mortality rates and higher migration which significantly increased the ageing profile, he said.
A key statistic at assessing the demand for and the development of retirement villages was the number of building consents that had been issued for retirement village units.
The number spiked in 2012, with almost double the number of consents being issued compared with 2011. In January and February, the latest data available, 126 consents had been issued.
''If we simply annualise this figure, we are looking again at around 800 consents in 2013. The jump in 2012 is consistent with the increased activity in the market,'' Mr Young said.
Investment view
RYMAN HEALTHCARE
Ryman continued to deliver a high-quality product that was enjoying increased demand given the compelling demographics in its favour. Forsyth Barr was bullish about the opportunity for Ryman to replicate its New Zealand business in Melbourne but there was a risk it could take several years to establish a brand and build scale. Buy.
SUMMERSET
Summerset remained well-positioned to successfully grow its business and had the potential to self-fund its village expansion through recycling capital. A risk factor was the ability for Summerset to execute its development strategy - increasing margins and the fast sell-down of new units - given the rapid increase in activity and the increasing market expectations. Accumulate.
METLIFECARE
The company was a turnaround story and a business that was getting back on track following a volatile period. Metlifecare looked attractive given it was trading below its net tangible asset value. There was a risk for investors that the near-term earnings could remain subdued given its low operating margins and higher maintenance capital expenditure. Buy.
