Ryman shares drop to four-day low as increased costs seen weighing on future earnings

Friday 16th May 2014

Shares in Ryman Healthcare weakened for a second day on the expectation New Zealand's largest listed retirement village operator will post slower earnings growth in coming years as its costs increase.

Christchurch-based Ryman yesterday posted an 18 percent rise in underlying earnings to $118.2 million for the year ended March 31. Increased costs from adding staff and boosting wages for its aged care workers meant annual earnings growth slowed to a 14 percent pace in the second half, from a 22 percent rate in the first half, brokerage Craigs Investment Partners said in a note.

Shares in Ryman fell as much as 1.2 percent to a four-day low of $8.60. At midday, the stock was down 0.9 percent at $8.62, adding to yesterday's 2 percent decline.

Ryman's costs will probably accelerate in coming years as the company is likely to have exhausted its accumulated tax losses, meaning it will have to start paying tax on its assessable earnings which will grow over time, Craigs said. In addition, Ryman's operating costs at its aged care facilities will step up as it raises wages to caregivers and invests in additional staff and training.

"In FY15, we expect earnings per share growth will remain robust but slow back towards trend of about 15 percent per annum following several years of growing above trend, as Ryman pays tax for the first time and as increased costs in its aged care business roll through," Craigs research analyst Stephen Ridgewell said in the note.

Ryman's earnings per share growth slowed to 17.9 percent in 2014, from 19.2 percent in 2013, Craigs said. EPS growth is likely to weaken further to a 13.9 percent in 2015 and 11.9 percent in 2016 before picking up again to a 15.9 percent pace in 2017, the brokerage estimates.

Ridgewell maintained his 'sell' recommendation on Ryman shares, saying the company's strong growth outlook is already priced into the stock.

BusinessDesk.co.nz

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