Metlifecare likely to see share price surge, says First NZ Capital

Analysts are picking a likely upsurge in the share price of retirement village operator Metlifecare [NZX: MET] in coming months due to a boost in development, change in leadership, and supportive conditions, despite the company having traded at a discount relative to its industry peers over the past decade.

Metlifecare delivered net profit of $125.7 million in the first half of 2016, more than three times higher than the previous year, mainly due to a lift in list prices for resale units in Auckland and Bay of Plenty. It is one of the country's largest providers, with 25 retirement villages throughout the North Island and $2.4 billion in assets.

The appointment of a new chief executive, the former head of Housing NZ Glen Sowry, who took over the reins in April, could lead to accelerated development rather than traditionally lagging, First NZ Capital analysts said in a research note.

"We see potential for a well-communicated development strategy to be well received by the market. Given the circumstances, we believe some re-rating could occur before actual execution."

Mr Sowry's three years at Housing NZ could translate well to what the analysts call Metlifecare's "lowest hanging fruit –namely development expansion."

"We see Metlifecare's pipeline of building as more attractive than it has been for many years and we expect new management over time to accelerate both the build programme and also site purchases," they said.

Metlifecare shares are currently trading at $5.39, up 10 percent in the past year, compared to $8.98 for competitor Ryman and $4.36 for Summerset. First NZ has increased its target price on Metlifecare from $5.45 to $5.90 per share.

Metlifecare has traded close to net tangible assets per share over the past 15 years rather than at a multiple of NTA as rivals Ryman and Summerset do. Although the operator's valuation discount to its peers has improved in recent months, the analysts expect it to narrow further to closer to Summerset.

Some NTA uplift is already 'locked in' due to the unit price increases already booked in the first half and supportive house price inflation in the first quarter of 2016, with Metlifecare having the most advantaged exposure to the housing market of the listed retirement operators due to having more assets in Auckland and Tauranga, the analysts said.

It's due to report its full-year results in August and First NZ is forecasting a full-year net profit of $212 million, compared to $123 million in 2015.

First NZ said it wouldn't rule out Metlifecare's cornerstone shareholders, Infratil and NZ Super who both hold just under 20%, increasing their stakes given the long-term investment horizon.

(BusinessDesk)