Retirement, healthcare sector improves its game

By Peter V O'Brien, Finance writer

Friday 19th October 2001

HEALTHCARE SECTOR SHARE PRICES (c)

Company	Price 15.10.1	Price 12.4.01	% change Apr/Oct	2001 high	2001 low

Calan	80	78	+2.6	95	73
Eldercare ¹	17	14.4	+18.0	21	11.5
Metlifecare	105	92	+14.1	135	90
Ryman	198	192	+3.1	215	76

¹ Pre-issue prices

Share prices of companies operating in the healthcare and retirement village market stabilised over the past six months after substantial declines in the period from October, 2000 to April, the latter month the last time The National Business Review examined the sector.

Calan Healthcare Property Trust's price fell 30.3% in the October/April six months, Eldercare New Zealand dropped 61.1%, Metlifecare retreated 24% and Ryman Healthcare gained 6.6%, going against the overall trend.

Calan Healthcare does not operate the facilities it owns, but, since it builds and leases healthcare facilities to specialists in the health field, it was convenient to include the company's share prices in the table.

Eldercare reported a net loss of $8.18 million for the year ended May 31, of which $1.96 million was related to losses on sale of shares and $5.4 million to writedowns and realised losses on its property holdings.

The company had earlier signaled a "repositioning into the wider healthcare market," while maintaining its core operating assets of hospitals, nursing homes and a clinical rehabilitation facility.

Its new strategy was designed to lower reliance on retirement village developments.

Eldercare sold a retirement village and nursing complex in New Plymouth toward the end of September for $2.5 million, with settlement in early October.

The company announced a plan to raise more than $10 million in new equity from current shareholders and institutional investors. It said the recapitalisation was to fund planned acquisitions of medical and healthcare service companies, broadening its base to reduce reliance on property development income.

Shares went ex rights last Monday. The rights issue is in the ratio of 1:7.5 and the price of the new shares is 16.5c.

Applications close on November 9.

The company will raise another $2 million through a placement of 12.12 million shares at 16.5c each to Alliance Capital Management New Zealand.

It will then issue a $5 million capital convertible note in favour of Cullen Investments, one of entrepreneur Eric Watson's investment companies.

The note matures in 24 months when, at the election of the Eldercare board, 75% of the face value can be redeemed for cash or converted into shares at the lesser of 22c a share or a 10% discount to the then market price. Interest will be 11.75% a year.

Resolutions to approve the share placement and the capital convertible note issue will be considered at Eldercare's annual meeting on October 31.

ABN Amro Craigs is underwriting the rights issue, which may be just as well, because the application money is almost the same as Monday's share price.

The new money will reduce debt and set the company on its new direction of acquisitions in the medical and healthcare sector.

Eldercare's share price went from a 2000 high of 70c to the current level.

The market will need solid evidence of a profitability turnaround before it gives the stock any substantial re-rating.

Metlifecare has turned itself around, earning $2 million in the six months ended June, before taking account of an extraordinary item of $1.01 million, being the proceeds of keyman life insurance.

The company lost $1.32 million in the corresponding period of the previous year, a figure that included unusual items of -$1.56 million for restructuring costs and a writeoff of development feasibility costs.

Metlifecare earned $474,000 for the full year ended December, 2000, although the result before unusual items and tax was $2.95 million, compared with $3.28 million in the previous year.

Chairman Peter Fitzsimmons said the latest half-year results were "pleasing" and a sign the company was "now on track to achieving sustained growth and enhanced operational and financial performance."

Shareholders will want to see more of that, because the $2 million before unusual items earned in the latest six months was an annualised return of 4.4% on shareholders' equity, including outside equity interests in subsidiaries.

Ryman Healthcare has described itself as consolidating its "position as the leading operator in the sector" on the basis of its result for the year ended March.

That was fair comment, given net profit of $14.1 million for the year, a 12.3% increase on 2000's $12.56 million and a share price which rose 10% between August last year and this week.

Ryman's 2001 report said the company had an advantage in steadily diversifying into non-government controlled sectors.

It constructed and operated integrated retirement villages, "not standalone resthomes and hospitals."

The company also said it had the resources and economies to keep paying reasonable wage increases, despite the government's policy of freezing resthome fees for the past four years.

While company reports always put their operations in the best light, Ryman has delivered, as shown in the maintenance of its share price and a 14.7% return on year-end shareholders' equity.

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