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Ryman shares ‘not priced for disappointments’

Morningstar analysts are advising investors to “reduce” their holdings in Ryman Healthcare [NZX: RYM].

Morningstar says the shares are overvalued and the market enamoured by the firm’s growth prospects, particularly in Australia where the addressable market is much higher. “However, we argue the stock is not priced for any disappointments, which could come from missteps in Australia and moderation in New Zealand house prices.” 

The new rating comes in the aftermath of another solid interim result which was ahead of expectations, plus plans to develop aged care facilities in Australia. 

The underlying net profit after tax increased 22% to $58.5 million compared with Morningstar’s earlier forecasts of $55.3 million. 

“Despite the strong first-half performance, management maintained its medium-term growth guidance of 15% a year. 

“We have not made material changes to our forecasts, which assume a 16% and 14% growth in net profit after tax during 2014 and 2015 respectively,” Morningstar says.

“Ryman continues to execute to perfection, and this, coupled with the tremendous growth prospects in the aged-care sector, should deliver solid earnings growth for the foreseeable future. 

“We have lifted our fair value for the stock from $5-6 a share due to the additional cash generated since our last update and a modest reduction in the weighted average cost of capital. 

“The stock continues to trade at a substantial premium to our fair value estimate and is also significantly above its historical price to earnings and enterprise value to earnings before interest, taxes, depreciation amortisation multiples.”

Comments and questions

The crowd seem to be pulling out of RYM to get into SUM, which appears undervalued by comparison.

The current retirement home model is unsustainable.

Their new customers are getting older, and the majority of their staff are on minimum wage.

Put that in your future cashflow spreadsheets, together with governments reducing ability to fund $600 per week subsidy, and you can see this is only going to end in tears for investors.

Their property business can only prop up the group business for so long. At current share prices, all this investment amounts to is a big ponzi scheme.

Ask site managers, if you dont believe me.