Estia Health Ltd (ASX: EHE) today released its 1H FY19 results and its share price is down 2%, so is it a buy
Estia Health is one of the largest residential aged care providers in Australia. Estia has 68 homes with 6,046 operational beds across the east coast of Australia and also in South Australia. Estia has reported a bed occupancy rate of 93.9% for 1H FY19, which is down 0.1% for the same corresponding period last year.
The Key Financial Results
Estia Health Ltd announced a fully franked dividend of 8 cents per share, which amounts to a dividend yield of 3.31%.
Operational EBITDA grew by only 3.1% to $46.9 million (click here to learn what EBITDA means). Estia noted that occupancy rates and sector compliance pressures have impacted financial performance. While occupancy rates are projected to rise in the future with the ageing population it is the compliance pressures that should be of concern to investors.
Another financial challenge Estia has faced this year is a decrease in payments of upfront refundable accommodation deposits (RAD) paid by residents. Instead, residents are choosing to pay a partial RAD in combination with a daily accommodation payment (DAP).
Estia states that the RAD decrease has affected facilities in areas where residential house prices have fallen. This change in preferred accommodation payment leaves Estia with less capital available for future investment.
Estia Management Comments
Commenting on the outlook for FY19 and beyond, Estia Chief Executive Officer Ian Thorley said:
“Estia now expects to deliver low to mid-single digit percentage increase on FY18 EBITDA from the existing portfolio of homes in FY19 subject to no further material changes in market or regulatory conditions.”
Is Estia A Buy?
The comments from Estia CEO, Ian Thorley, do not paint a good picture for the near term outlook of the company.
With the Aged Care Royal Commission currently underway, it is highly likely there will be regulatory changes to this sector in the near future. In conjunction with the forecast growth of a low to mid-single-digit percentage increase, I would recommend looking at other investment opportunities. If you are looking to invest in healthcare there are better options available.
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