Bupa has both care homes and retirement villages. Photo / Supplied
Bupa's New Zealand rest home care business is said to be under review by its owner, British health insurer and healthcare provider Bupa.
Australian media speculated this week that it was up for sale with NZX-listed Oceania Healthcare or private equity owned Metlifecare possible bidders for the company.
A spokesman for Bupa New Zealand said it didn't comment on market speculation.
Forsyth Barr analyst Aaron Ibbotson said he would be very surprised if Oceania bought it.
"They made recent acquisitions, they have got quite a lot of care already. They are not unlevered - I wouldn't call it highly levered but they are certainly not unlevered.
"And in my view the share price is not at a level where they would be supported for raising capital."
He said the care sector was very difficult at the moment as it was largely unprofitable.
"Costs have gone up a lot faster than revenues over the last few years but accelerated over the last 18 months.
"Our estimate is that ebitda per bed has more than halved over the last couple of years. It is difficult to make it work."
He said an acquisition could make more sense for Metlifecare.
"They are building a lot of care at the moment, they need some care."
Metlifecare's spokeswoman said: "We've certainly built M&A [merger and acquisition] into our strategic growth plans but won't comment on speculation."
Ibbotson said of all the listed retirement village operators Oceania or Arvida could be possible bidders but he didn't think either were likely.
Financial accounts for Bupa Care Services NZ show it has faced a squeeze on its profits from higher operating expenses.
Its total comprehensive income for the year to December 31, 2021 attributable to the owners of the group was $51.6m, down from $65.9m a year earlier.
While revenue grew from $303m to $310.8m its operating expenses rose from $283m to $301.7m.
It has net assets of $870.6m.
Harbour Asset Management portfolio manager Shane Solly said the Bupa business had "not had the most love" given to it.
"That doesn't mean there's a problem it just means anybody that whoever buys the business is going to have to invest to sustain and lift up the offering. It will have to be people that are willing to take a longer-term view."
He said it had a good brand in terms of being a well-regarded care provider.
Solly said the listed retirement village and rest home care sector had been relatively weak over the last year as people had anticipated a slowdown in the housing market, so as a result most of the stocks were in the lower performing end of the NZX50.
"It makes it more difficult for people to raise capital."
But he said the Summerset result had revealed what they were seeing was strong demand from older New Zealanders looking for a place to live that was safe and secure.
"There is definitely a break between what public markets are paying for assets to the degree that some of these listed entities are trading at quite big discounts to their asset backing."
Summerset and Ryman were trading at much smaller premiums as the sector had seen a de-rating and it became more of a challenge to fund acquisitions from equity.
The sector had done well for its residents through Covid but was incurring big costs to deal with it and was also being penalised by Government because funding subsidies for care were running a long way behind costs, Solly said.
On top of that the former district health boards were attracting nurses and carers away from the sector with higher pay.
"When you look at Bupa it will be important to understand where they are in that mix. But the stock market is not paying for the longer term growth in that space now."
Two former PIE Funds investment managers are launching a new boutique fund manager today - the first non-KiwiSaver investment manager to launch for some time.
Discovery Funds Management is based in Takapuna and has been set up by Mark Devcich - the former chief investment officer of PIE Funds and Chris Bainbridge - the former head of Australian equities.
Devcich said it planned to launch an Australian equity fund that would be seeded with their own capital and feature a high conviction active management strategy with just 20 to 25 companies it invests in.
The fund will only be open to wholesale investors with a minimum investment of $250,000.
Most new fund managers in New Zealand in recent years have been in the passive management space with pressure on fund managers to offer low fees.
Devcich said it believed there was still enough demand from investors for another active manager.
"A lot of the current active managers are at capacity," he said pointing to his previous employer PIE Funds which had closed three out of four of its current funds to new investors.
He said other active managers like Milford and Fisher Funds had also grown to a size where they had a lot of funds under management and that made it harder to generate outperformance.
Takapuna is turning into a funds management hub with Fisher, PIE Funds and now Discovery all located there.
Bainbridge left PIE Funds in March while Devcich only finished up with the company this week. He said the pair had come up with the idea back in November and he had worked out a nine-month transition period.
"We think there is a good opportunity. We have both had over a decade in experience in investing." The pair previously managed PIE Funds emerging companies fund which had returned 19 per cent per annum after fees for over nine years.
The fund will be capped at $300 million but investing in it won't come cheap. It will have a management fee of 1.2 per cent with a performance fee on 20 per cent of the performance above the S&P/ASX Small Ordinaries Accumulation Index.
Could Harmoney's share price finally be bottoming out?
The dual ASX-NZX listed consumer lender declared a maiden cash profit this week which saw a slight uplift in its share price.
Its shares have trended downwards since it listed in November 2020 at a A$3.50 issue price.
The shares were trading at A70c this week. Jarden has an upbeat outlook on the stock and raised its target price from A$1.15 to A$1.21 after the result with a buy rating.
Analysts Ben Brownette, Wilson Wong, Matt Johnstone and Sona Fernandes noted that Harmoney delivered a result in line with its guidance and had strong loan book growth.
"We expect the company to continue increasing its loan book at a favourable net interest margin, notwithstanding higher funding costs and a more difficult macroeconomic backdrop."
Harmoney didn't give any profit guidance but said its outlook was for a net interest margin above 10 per cent and cash net profit growth.
The analysts said this was slightly below its FY23 assumption which was now 10.7 per cent but its view was that a margin of about 10 per cent was a strong outcome.
"If Harmoney continues to grow its loan book and maintain its >10 per cent net interest margin, we believe it will see significant operating leverage from scale and higher margins from repeat business as customer acquisition and marketing expenses lower."
They noted the key risks were higher interest rates lending to increased funding costs and a rise in loan impairments.
BGH's tilt at Tourism Holdings has sparked more merger and acquisition speculation.