Cash in on longer life expectancy

Companies that target our ageing population can expect to profit and could prove healthy investments, writes Margaret E Ward

ADVANCES in medical science and improved nutrition mean people are living longer.

Many pensioners are very active and have more money to spend on their interests.

Those who suffer from ill health have an increasing number of medical devices and procedures, such as angioplasty, to prolong their life. Drugs for high blood pressure, osteoporosis, heart conditions or arthritis are staples in many older people's medicine cabinets.

Companies that produce goods and services catering to the "grey market" stand to benefit from changing demographics. In Ireland, there are more than 1m people over the age of 50. Life expectancy is 75 years for a man and more than 80 years for a woman. The number of pensioners, as a percentage of population is also increasing.

People are more physically able than ever before. Some older people are working well past retirement age, so their disposable income is greater than that of past generations.

Investors who identify companies or funds targeting the needs of the growing mature market may find their shares offer the prospect of long-term, above average returns.

Many of the businesses that have identified this new interest group are international companies. In America and Britain, business leaders and politicians treat pensioners with respect, as they form powerful, highly organised lobby groups.

The majority of Irish businesses have failed to identify this as a target market, says Michael O'Halloran of Irish Senior Citizens Parliament. "Older people have money and time on their hands and there is no question that there is a growing market for services that cater to them."

The main concerns for elderly people include health, travel and entertainment.

Irish equity analysts interviewed by The Sunday Times believe many sectors stand to benefit from those who live longer: pharmaceuticals, medical devices, gardening, DIY, leisure, travel, wealth management and nutritional foods and drinks were all cited.

Pharmaceuticals and medical devices Reliance on drugs is a fact of life for many older people, but fewer Irish people use them when compared to their European counterparts. "In tables comparing spends on drugs, Ireland is at the bottom, so there is great room for growth," says Des Flood, head of equities at Hibernian Investment Managers.

United Drug, which on Friday was trading at Euro 14.50, was a favourite choice of analysts who believe Irish people will spend more on drugs as they get older.

Despite this, United is trading at a high price and, if purchased, should be held for at least two years.

Overseas, Pfizer ($33) is a good option according to Pramit Ghose of Bloxham Stockbrokers, which holds the stock in its Intrinsic Value fund. The company manufactures Viagra, a treatment for erectile dysfunction that can be common in older men, and Lipitor, a cholesterol-lowering drug, a good fit for the grey market. It is also noted for excellent management and a strong product pipeline.

Schering-Plough ($19), in the Contrarian Fund, is in a turnaround situation, with cheap valuations.

The risks are increasing in this sector, however, as it has become much harder to win approval for new products. In the US, for example, there are strong lobby groups pushing for lower medicine prices and many drug companies have been losing vital patent rulings to generic competitors. General Motors ($25.40) is a leading lobbyist in this area, due to the size of its health bill.

Billy Hanley, a fund manager with Dolmen Butler Briscoe, believes medical device companies are more likely to benefit from money spent by ageing patients than drug firms.

DCC (Euro 11.60), which has a medical devices business, may find that sales improve as the population becomes older. Smith & Nephew (Pounds 37.57), the British firm which specialises in orthopedic replacement products, such as hip and elbow joints, is also a possibility.

DIY and gardening Spiralling property prices mean that many older people cannot afford to move and must make repairs on their living spaces, says Flood. This means that gardening and DIY centres such as Woodies DIY, which is owned by Grafton Group (Euro 3.86) and B&Q, which is owned by Kingfisher (Pounds 2.80), in Britain, may benefit from extra business.

Travel and leisure Jurys Doyle hotels (Euro 8.20) and Ryanair (Euro 5.58), both held in Bloxham's Contrarian Fund, may also see a bounce from the actively retired, as many elderly people are on a budget but have plenty of time to spare. Ghose also likes them because they look cheap following share price declines.

Mid-week or low-season deals targeting this age group can help to improve occupancy and load rates. Accor (Euro 32.81), a dominant hotel operator in Europe, is doing well in the bargain hotel market thanks to an excellent website, says Ghose.

Carnival Cruise Lines (Pounds 18), the largest cruise operator in the world, carries more than 2m passengers a year. With fears of terrorist attacks on cruise ships, the company's share price has fallen to almost half of its value two years ago. It is best to employ a buy-and-hold strategy until tourism recovers.

Wealth management The stereotype of pensioners living out their days on government handouts is no longer the reality for an increasing number of people.

The push towards private pension provision means that many people have accumulated wealth during their working life and now have the time to enjoy it or pass it on to their children.

Wealth management and inheritance planning businesses aimed at high net-worth investors should find business doing well. Investment in one of the main Irish banks or UBS (SFr74), the biggest private bank in the world and a huge asset manager, is one way to capitalise on this portion of the grey market.

"The likelihood of baby boomers running out of money is small," says Kevin Walsh, portfolio specialist with Bank of Ireland Asset Management.

"However, property values remain a concern, as many have money tied up in their principal private residence and holiday homes. It's a big part of their asset base and, if everyone starts to sell and or look to cash, it will be a scary time."

Food and drink As people get older their nutritional requirements change, and companies that offer healthy products targeted at that market are hoping to cash in on increased awareness. Nutritional drinks by companies such as Danone (Euro 119) could do well.

On the convenience side, one of Bank of Ireland's larger holdings is Sysco ($30.70), the American food and food services company. More food dollars are being spent outside the home and Sysco, which supplies food service products such as plastic cutlery to restaurants and pubs, is an obvious example. A recent addition was the Outback Steakhouse mid-market dinner restaurant chain.

Portfolio planning Grey shares should be part of a diversified portfolio. Investors can largely expect the share price to increase even if they do not pay good dividends. Shares should be held for at least two years.

Targeting the grey market also has a downside. Many retirees have a "waste not, want not" attitude and are very price sensitive, so if something is not perceived as good value they won't buy it.

Also, many pensioners rely on a fixed income, so inflation can cause them to tighten their belts faster than other groups. Companies that rely solely on the grey market are probably not good investments, but those that target some of their products at this emerging market should benefit over the longer term.