Ryman had a surprisingly good result, reporting underlying earnings (before property revaluations) of $301M vs. mgmt’s guidance of $280-290M. What drove this was mostly resales of retirement units – gross resales margins rose +4.2% as existing units were sold to new tenants, while underlying EBIT sat fairly solid at ~22%. It’s a nice read-through for Oceania and Summerset, our “value” and “quality” picks, respectively. It’s also a good reiteration of why our preferred way to benefit from property is via retirement operators – in a bull market you get the benefit of revaluations; in a bear market you still get that underlying income and the benefits of an ageing population. We still have concerns over Ryman’s oblique debt positioning – gearing remains high – and prefer exposure via our two preference picks. Oceania has earnings coming up this week and we’re interested to see how resales are looking – expecting a solid result.
Rakon reports on Wednesday and our questions are i) when will we see a dividend and ii) how will the company become more value-accretive to shareholders? We’re expecting a solid result as demand for Rakon’s product continues unabated, but the question is (as always with Rakon), when does the company start sharing some profit?
ChatGPT & Megacaps
A chart. The S&P 500 has been powered overwhelmingly by ten mega-caps this year. Under the hood things have fared less well – the jeans maker Levi’s is sitting at a 52 week low, while Vans and Converse manufacturer VF Corp is sitting around the same, while previous market darlings like Snap and Match Group have sustained +50% losses on a rolling basis. Elanco Animal Health is trading near all time lows at ~$8.50 – and there are a lot of companies like this. On the New Zealand front, you’ve got Oceania Healthcare sitting at 77 cents and a bunch of REITs trading “cheap” because building slow-down and revaluations have been priced in. With the “mega stars” of the stock market stripped out the picture is a little different. We don’t think this is bearish or bullish; just that there is opportunity, perhaps, by looking away from the mega caps.
The mega caps have been fueled by the rise of AI, of course. If you go on ChatGPT now you can have it run a discounted cash flow for you, or you can (as we did) have it make you an index of family-controlled companies. It’s impressive. You don’t want to fade the AI rally: there is too much momentum; on the other hand, the creators of ChatGPT have a problem: ChatGPT is a statistical representation of the internet. The more content generated by ChatGPT moves onto the internet, the more ChatGPT is just consuming itself. It is, in the words of Nassim Nicholas Taleb, a “self-licking lollipop”. Again – we don’t have a particular view here, we just think it’s something to think about. If you think about the exponential expansion of data in the world since the internet was invented you can kind of model the amount of AI-generated content that may proliferate the internet. We prefer a picks-and-shovels approach and see the main beneficiaries here being i) data-centres (i.e. NextDC, Infratil) and cloud providers (i.e. Amazon, etc).
