Aged care sector now less appealing for investors

16:00, Jan 27 2014

The domestic sharemarket outperformed a global downturn ignited last week, but time might be up for banner shares in the aged care sector, having enjoyed many years of strong growth.

Yesterday the benchmark NZX 50 Index was down about 20 points to 4853.8 points at the close of trading, a drop of 0.41 per cent, a much better performance than the slump in Asian shares. The Australian market was closed yesterday for Australia Day.

The New Zealand market recovered slightly having fallen 1 per cent earlier in the day. In the day's trading 22 companies declined, 13 gained and 15 remained unchanged.

Forsyth Barr broker David Price said the local sharemarket was marked down following on from a global sell-off in equities which began last Thursday evening, sparked by weaker-than-expected Chinese economic data.

The data had also led to a drop in the New Zealand dollar, which yesterday traded lower against the greenback as global emerging-market currencies took a beating.

The kiwi was trading at US82.29 cents yesterday morning after dropping as low as US82.11c during the weekend, down from US82.81c at 5pm on Friday. This was more than 2 per cent lower than the three-month high of US84.32c less than a fortnight ago


Asian shares took a beating and the yen was at a seven-week high against the US dollar yesterday.

MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 1.6 per cent to nearly a five-month low, on track for its worst one-day performance since August after losing more than 1 per cent on Friday. Japan's Nikkei share average gave up the 15,000-level and dropped 2.7 per cent.

Expectations of continued stimulus withdrawal by the US Federal Reserve added to the Asian market's gloom. Fed officials are seen cutting bond-buying by another $US10 billion at their regular policy meeting beginning tomorrow, and are likely to remain unfazed by the ongoing rout in emerging markets.

Meanwhile, Forsyth Barr warned shares in New Zealand's top performing aged care sector were likely to underperform throughout 2014.

For the year-to-date, both Summerset and Metlifecare had been among the eight biggest risers on the NZX 50, having increased 9 per cent and 6 per cent respectively.

But in a research note the sharebroker said the fundamentals for aged care stocks, which also included Ryman Healthcare, were stretched.

"While the demographic long term attributes remain attractive, the ‘value for risk' proposition is less appealing and we feel it is time for investors to take profits and reduce weightings towards the sector."

Ryman Healthcare has risen 204 per cent since the end of 2011, while Summerset and Metlifecare have also flourished, rising 165 per cent and 86 per cent over the same period.

Forsyth Barr had recently retained its "accumulate" rating on Ryman shares, though had downgraded both Summerset and Metlifecare from "accumulate" to "hold".

Shares in all three companies closed down yesterday, with Summerset falling the most, 3.12 per cent, to finish trading at $3.42.

Summerset's new aged care facilities expected to open this year had given the broker a more conservative view of the company's likely performance for the next few years.

Analyst Jeremy Simpson said in a research note new aged care facilities were typically loss-making in the first year or two, until they became better occupied.

Summerset was expected to open two or three new facilities in 2014, which were the first for a number of years. As such Forsyth Barr had a more conservative view of Summerset's potential revenue growth and likely operating costs through this time.

The New Zealand stock market followed global markets down on Friday and continued lower yesterday morning on "pitiful" trading volumes due to Auckland Anniversary Day, Price said.

Today would provide a better gauge of the market's response to international events.