Oceania Healthcare (OCA) 1H21 Result

We walk away from Oceania Healthcare's (OCA) 1H21 result with increased confidence in our view that OCA has reached an earnings inflection point and are on track to double annuity EBITDA from FY20 to FY23. Specifically, we note three positive developments; (1) OCA reported positive free cash flow and reduced net debt from its FY20 result (May year end), the first aged care operator to do so for several years; (2) annuity EBITDA grew by ~+30% versus 2H20 and +20% versus 1H20 – we firmly believe that OCA's earnings have troughed and will continue to grow over the coming years; and (3) we were encouraged by the large proportion (we estimate 80-90%) of delivered care suites that were sold under an ORA versus care beds with an associated premium accommodation charge (PAC). We reiterate our OUTPERFORM rating with an increased target price of NZ$1.70.