Aged Care – regulatory environment masks the opportunity

The two listed aged care operators we formally cover – Regis Healthcare (REG) and Japara Healthcare (JHC) – have come under significant selling pressure (fallen over 15%) since the Budget cuts were announced in May. In response to the higher-than-expected increase in residential aged care funding, the government has announced changes that relate to a redesign of the complex health care (CHC) scoring matrix. These changes are estimated by the government to save A$1.2bn, although much of these savings are expected in 2019 (approximately 40%). We expect the aged care operators will be able to partially offset the reduced growth in government payments by charging higher resident fees and increasing accommodation prices. After these changes are implemented, the government forecasts expenditure will grow by 5.1% pa to 2020.
Morgans Financial Limited

Morgans Financial Limited

[Screen Shot 2016-07-11 at 1.33.59 PM.png]

The industry remains highly fragmented despite the recent acquisition activity (Regis acquiring the Masonic portfolio and Japara acquiring the Profke portfolio). The changes announced will put additional pressure on the business models of all operators, but in particular, the weaker operators will become less viable. This provides an opportunity for the well-run operators like Regis and Japara. We believe the current share prices of both providers account for the uncertainty surrounding the budget cuts and we can see share prices moving up by approximately 10% into the August reporting season. Both companies offer a reasonable yield of approximately 4% fully franked. We recommend clients add either Japara or Regis to their portfolios.

Article contributed by Morgans Financial:  (VIEW LINK)

2 topics

2 stocks mentioned

Morgans Financial Limited
Morgans Financial Limited
Morgans Financial Limited

Morgans is Australia's largest national full-service retail stockbroking and wealth management network with over 240,000 client accounts, 500 authorised representatives and 950 employees operating from offices in all states and territories.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.


Sign In or Join Free to comment