Investment fund experts have welcomed conditional deals for the NZ Super Fund and Infratil to purchase big stakes in NZX-listed retirement village operator Metlifecare.
Paul Harrison, Salt Funds Management managing director, said the deals struck at $3.53 looked cheap after the shares shot up to $4.10, before closing up 7.4 per cent at $4.06.
"It's certainly given life to the stock. We're pretty happy with it because Metlifecare was significantly undervalued," Harrison said, citing rivals Ryman Healthcare trading at $7.45 and Summerset Group at $3.22.
Chris Gaskin, a fund manager at Devon Funds, predicted the two buyers would be good for the business. "I would imagine that Infratil and NZSF will add a lot of value from here and as existing Metlifecare shareholders we are very pleased with the outcome," Gaskin said.
Retirement Villages Group's 37.7 per cent stake is being sold and the Super Fund has conditionally agreed to buy 17 per cent of Metlifecare, lifting its stake from 2.89 per cent to 19.9 per cent and paying $126 million ($3.53 a share).
Infratil is buying a 19.9 per cent stake, costing $147.9 million based on the $3.53 price. Harrison said the buyers would bring stabilisation and New Zealand ownership.
Gaskin said Metlifecare had about the same size village base as Ryman and similar book values, yet was trading at a fraction of Ryman's $7.45.
"Ryman now trades at an equity value of $3.725 billion or 5.1 times book value versus Metlifecare at $863 million or 1.2 times book value, even adjusting for this morning's move. It doesn't matter how great you think the Ryman business is, you are paying for extraordinary growth from here," he said.
"Metlifecare is now well capitalised, generates about the same [earnings before interest, tax, depreciation and amortisation] from its existing villages that Ryman does, and this sorts out the board and governance issues," Gaskin said. In a report Craigs Investment Partners this month initiated coverage with a buy recommendation, and said Metlifecare was its preferred stock in the sector.
Craigs investment analysts Stephen Ridgewell and Bryant Cheong said: "This is for four reasons: compelling value, with the current share price backed by Metlifecare's existing assets and little value being placed on its growing development pipeline; earnings growth is set to accelerate as development resumes; 66 per cent of Metlife's current portfolio is located in Auckland, which has enjoyed the strongest property price growth over the past two years, and which is yet to flow through to earnings; and low debt."
Alan Edwards, Metlifecare MD and CEO, told Thursday's annual meeting at The Poynton retirement village that the business was focused on the golden triangle area between Auckland, Hamilton and Tauranga.