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A Broker's PreView - Metlifecare Coming of Age

Overview: If there are two certainties in NZ at the moment, it is that Auckland house prices will dominate the headlines and our population will get older. Metlifecare has unique exposure to both these certainties with approximately 60 percent of their retirement facilities in the Auckland region.

Pros: In April, Metlifecare acquired another Auckland development site, a 5.5 hectare property within Manukau Golf Course in Manurewa. This will be Metlifecare’s 16th village in the wider Auckland region, and 27th overall.

Metlifecare’s exposure to the Auckland housing market helped the company report a 9.8 percent increase in Net Tangible Asset (NTA) per share for the first half of this year (over the prior period). With a share price of $4.88, and an NTA of $3.92, the Company currently trades at a 25.4 percent premium to its NTA. The gold standard in the aged care sector, Ryman, currently trades at a 300 percent premium. This suggests Metlifecare may have further upside as they produce consistent results and develop quality villages.

Cons: Village quality is one reason Metlifecare does not attract the same asset premium that Ryman enjoys. Historically, Metlifecare did not have the same focus on the ‘continuum of care’; a model that Ryman has lead the way on. The ‘continuum of care’ refers to a village that provides all the services that the elderly need, all the way from a stand alone unit in a village, through to hospital care.

Metlifecare originally focused on merely building villages, ignoring hospital care. They have moved to address this, with new developments including the hospital care element and old developments being retrofitted where appropriate. This increases the desirability of their villages and will also help cash flow as aged care receives government subsidies.

Price performance: Metlifecare are trading near five year highs as the market starts to buy into their new strategic direction.

Investment outlook: Metlifecare still trades at a discount to its peers on many metrics, most notably their far smaller premium to NTA. Exposure to Auckland should see this NTA rise along with their sky rocketing house prices.

*A Broker's View is written by Grant Davies, Investment Advisor at Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through www.hhg.co.nz.

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