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Why The Aveo Group (AOG) Was Sent Packing

The Aveo Group (ASX: AOG) share price has been hit today, down 10% at the time of writing following an announcement to the ASX.

Aveo Group is the owner, operator and manager of retirement communities across Australia. It wants to be the leading and most innovative retirement village operator.

Today’s announcement 

Today’s market update concerns Aveo’s current trading, their annual distribution and a strategic review. In other words, a lot!

Current Trading Update

“The Australian residential property market remains subdued, although there has been some improvement since mid-May,” Aveo said. “This continues to have an adverse impact on the timing of prospective residents who are seeking to settle on their existing properties and move into seniors living accommodation.”

As a result, Aveo expects its underlying profit for FY19 to be in the order of $50 million.

Annual Distribution

Regarding their annual distribution or dividend for the year ending 30 June 2019, Aveo said it will be 4.5 cents per stapled security. This is within guidance of 40% to 60% of the expected underlying profit after tax result.

Aveo’s Strategic review

In August 2018 the Aveo began a Strategic Review to examine options to close the gap between the price of Aveo’s listed securities and the underlying value of Aveo’s retirement properties. Well, that review is still going and Aveo today said:

“…following extensive due diligence, Aveo received a confidential non-binding and conditional indicative proposal (the Indicative Proposal), from the preferred party. Aveo has been negotiating with that preferred party in respect of the Indicative Proposal, with a view to entering into definitive agreements leading to a Scheme of Arrangement, to give effect to the Indicative Proposal.”

The independent board heading up the review for Aveo has indicated that if the agreements leading to a Scheme of Arrangement cannot be agreed by Monday, 22 July 2019, the whole-of-company sale transaction process will be discontinued.

Buy, Hold or Sell

This is the latest ASX-listed company referencing the deteriorating residential property market as impacting their business. Additionally, Aveo had some bad press regarding business practices at the end of last year and therefore isn’t a share that’s on my radar.  Of course, if they do receive a binding takeover bid that would provide upside to investors.

Disclosure: At the time of writing David does not have a financial interest in any of the companies mentioned.

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