Ryman Earnings: Reasonable Result but Outlook Trimmed and Valuation Down 4%

We trim our fair value estimate for Ryman Healthcare by 4% to NZD 9.60, driven mainly by lower build-rate assumptions. In today’s fiscal half-year result, management revised down estimated fiscal 2024 building to 650-750 new units and beds (down from 750-800) driven by a deliberate slowdown in response to sales headwinds, and unintended construction delays which will push the completion of aged care centers into the following year. Management also flagged a review of its medium-term build target of 1,300 beds per year with findings to be revealed at the full-year result. We were already more conservative than the target, having assumed new units gradually grow from 821 in fiscal 2023 to 1,282 in 2033. However, we revised this down, now assuming 700 beds or units in fiscal 2024, growing to 1,253 in 2033. We also trim earnings growth assumptions for the fade stage of our discounted cash flow valuation, assuming 7% EBI growth from 2033 to 2053, down from 7.25%. We still think Ryman has demographic tailwinds, and its brand supports our narrow moat rating on the business. But we adopt more conservative assumptions given higher construction costs and delays look unlikely to completely revert to pre-COVID-19 conditions.