Eureka Group (EGH)

Rob Levinson, Chairman of Eureka Group (EGH), presented to us recently. The EGH business model appears intact - acquiring sub-optimally run, low socio-economic retirement 'parks', then increasing occupancy and reducing operating costs (via a pure rental model). The group is transitioning from a property management model to an ownership model (rent, catering margin plus a clip of services). Rob maintained there are plenty of potential acquisitions in the almost 2000 fragmented villages and was confident the groups target of acquiring 25 villages in 3 years would be beaten. EGH has already hit an annualised EBITDA of $7m without additional acquisitions which may make our numbers look light for FY16. We have been around the sector long enough to know the risks in this space - villages can be problematic to corporatise, acquisition competition can emerge and legislation risk always looms in the background, but we think the fragmented nature of the market and simple rental model will see EGH continue to grow. We maintain our ADD recommendation.