Ryman Healthcare Ltd (Ryman) are currently the 14th largest company on the NZX. Not long ago they were in the top five, but before we get into the recent history, it is worth going back 40 years to the very beginning.
Ryman’s website notes that in 1983, Kevin Hickman walked into a fire- damaged old villa to investigate how the fire had started. The building was a resthome, and Kevin didn’t like what he saw. “There were four people to a room with shared toilets down the corridor. The people running the resthome were nice and did a good job in as much as they were expected to. But to me, it was crazy. The standards were so poor. But that’s how resthomes were in those days.”
It started Kevin thinking about what the standards should be. “I thought, what would I want for Mum? I’d want a single room with an ensuite, for a start.” Kevin and his business partner, John Ryder, were soon purchasing units and converting them into their first resthome. Fast forward 16 years, and Ryman pioneered the ‘continuum of care’ model and were about to list on the NZX.
Ryman raised $25 million when they first listed, attracting 1600 shareholders (some of whom were HHG clients), and being valued at $135m. The company did not raise any further capital until recently, first with their dividend reinvestment plan in late 2022, but most notably, with the $902 million rights issue that was completed in March 2023.
The company had a difficult few years, dropping from highs of $17.20 per share pre-covid, to recently having to raise capital at $5 per share. Some of this has been outside of the company’s control, and sector wide. All retirement operators have had to deal with downward pressure on property prices (they are property developers after all), rising cost pressures due to minimum wage increases and immigration disruption, and delays in settlement due to the aforementioned drop in house prices. A drop in house prices nationwide has made it more difficult for retirees to realise what they would consider a fair value for their property (fair value in their opinion of course, which are usually anchored to recent highs – whether that is accurate or not).
Ryman’s had its own issues, with many analysts pointing out that the company had elevated debt levels, out of step with the industry. The debt levels were not so high as to call in to question the solvency of the company, but they were high enough to potentially limit Ryman’s ability to fund its lofty development targets. They perhaps took too long to rectify this issue and made a terrible funding decision by utilizing a US Private Placement (the details of which are covered in articles elsewhere, and are complex enough, we could spend the rest of this newsletter explaining should we go down that rabbit hole).
Ryman’s fall from the top of the NZX has some lessons for investors. The company has not turned into a terrible business overnight, but even seemingly unstoppable companies can come unstuck through a combination of bad luck and poor decision making (a2 during Covid is another recent example).
The main lesson we believe investors should take from this is the old adage to ‘not have all your eggs in one basket.’ Our industry refers to this concept as concentration risk. A brief explanation on this concept has been provided in the Jargon buster article.
