Listed Companies Growth Targets in a Brave New World

In a Nutshell: The Field Splits
The past year’s volatile activity has provided a fascinating insight into the divergent pedigree and investment strategies of the listed aged care groups. This report provides an analysis of the activities of the listed aged care providers within an emerging consumer driven market.
Financial Results
The following provides a summary and high level analysis of the year end 30 June 2016 results:
Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) indicate that the listed company performance is still behind the national top quartile performance based on the Aged Care Financing Authority (ACFA) data. Regis’ average EBTIDA per bed has improved and Japara’s results remain steady.
Estia’s performance has declined, which reflects their active acquisition year and possible inefficiencies resulting during the transition of the acquired facilities.
Operational Performance
Full year revenues are presented below (excluding other income items). Government funding, which primarily represents revenue from the Aged Care Funding Instrument (ACFI), and resident fees remain relatively comparable between entities. In the past year, the listed companies have introduced an asset replacement or capital refurbishment fee, as well as “club fees” for additional services and amenities.
There are other providers who have introduced or are proposing to introduce similar fees, however the Department recently released a statement advising providers of their concerns regarding some additional service charges, particularly capital refurbishment fees. The listed company share prices have dropped subsequent to this announcement.
There has been a significant shift in resident payment preferences over the past year. The payment preferences of the listed companies still vary from national averages, however, there has been a substantial downward movement in incoming residents electing to pay a RAD, with only 51% of Regis’ incoming residents electing to pay a RAD compared to 69% in FY2015; 76% of Estia’s incoming residents elected to pay a RAD compared to 86% in FY2015; and 59% of Japara’s incoming residents electing to pay a RAD, compared to 65% in FY2015.
As a core source of development funding, changing resident preferences towards the payment of refundable deposits will need to be carefully monitored. The cash flow implications will be material as the benefits of “high care” RADs are fully realised under Living Longer, Living Better legislative reforms.
Investor Sentiment
Whilst positive financial results have been achieved by the listed companies, share prices have declined over the period, and Estia’s share price plummeted further since the release of their FY2016 results. Estia’s share price has been in the decline for some months in response to budget cuts to aged care funding and major shareholder sell-outs.
The Government announced changes to residential care funding arrangements in the 2015 Mid-Year Economic and Fiscal Outlook (MYEFO) and in the 2016-17 Budget. The announced ACFI measures were estimated to reduce budgeted expenditure on residential care by a combined $2 billion (including DVA cuts) over the forward estimates.
Ansell Strategic performed a more detailed analysis of the implication funding cuts would have on older Australians in care and the organisations who care for them. The report was undertaken with support from UnitingCare, Catholic Health Australia and Aged & Community Services Australia.
Over 500 homes were surveyed, representing nearly 40,000 places – approximately 20% of aged care places in Australia. Further details of the report can be found here.
While Estia was quick to reassure investors about the impacts of the cuts, their share price was impacted when principal investor, Quadrant Capital, divested its interest, shortly after the Budget 2016 announcements. Estia Founder, Peter Arvanitis, also divested his interest in the company just days after the organisation released their FY16 results.
To find out more about Estia’s challenges going forward, you can access the link for the full report below.
We hope you enjoy the report.