The Regis Healthcare Ltd (ASX: REG) share price fell more 6.6% after issuing a trading update.
Regis Healthcare is one of Australia’s largest aged care businesses. It was established in the early 1990s with 104 places and now has over 7,000 operational places across 63 homes largely located in metro areas across Australia. Regis operates aged care facilities, retirement villages and home care.
Regis’ Disappointing FY19 Update
A few months ago Regis said re-iterated its guidance that the 2019 financial year ‘normalised’ net profit would be in the range of $47 million to $51 million, the company also said that EBITDA (click here to learn what EBITDA means) in the second half of FY19 would be similar to the first half, meaning it would be around $113 million for the full year.
Regis admitted that it expects to hit the lower end of the net profit guidance for FY19.
As part of the update, Regis said the $113 million normalised EBITDA includes $10 million of one off additional government funding.
The aged care operator’s average occupancy for the period to date in the second half of FY19 was 91.6% compared to 92.8% in the first half. The entire industry is supposedly experiencing this reduction.
At the end of May the company’s net ‘refundable accommodation deposit (RAD)’ was $130 million compared to $72 million in the first half of FY19.
Regis has guided that FY20 normalised EBITDA is going to be approximately $105 million, which would be a slight increase on the projected FY19’s EBITDA of $103 million (excluding the one-off government payment).
Normalised net profit for FY20 is expected to be approximately $38 million because of higher depreciation expenses due to the “continued ramp up of the facilities delivered from the development program.”
Is Regis A Buy?
Whilst Regis and other aged care operators have attractive long-term tailwinds due to the ageing population, there are short-term headwinds related to the Aged Care Royal Commission which could result in more regulation.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.