ESTIA Aged Health Care to list

[Joshuatree]

From another source

"Hot off the press.. Pricing wise doesn't look too bad.. A bit cheaper than Regis which performed really well recently. Plus Quadrant is known to leave a bit on the table.

Aged care operator Estia Health has priced its initial public offering at 20-to-23-times forecast profit and is set to formally launch the offer on Monday.
It’s understood Estia will lodge a prospectus with the Australian Securities and Investments Commission on Monday, signalling the start of a formal marketing roadshow and ahead of its institutional bookbuild set for December 5.
Estia is expected to price its float from $5.20 a share, which represents 20-times forecast profit, while the top of the range will be at 23-times. The offer is a discount to listed aged care companies Japara Healthcare and Regis Aged Care, which trade at 25-times and 26-times profit respectively.
The IPO is expected to value Estia at about $1 billion, while the precise amount of funds raised will be determined by how many shares are sold by Estia’s largest investor, Quadrant Private Equity.
It is understood Quadrant has committed to keep at least half of its stake, but its exact holding will not be known until after the float prices at the institutional bookbuild.
Estia, and its bookrunners, Deutsche Bank, Morgan Stanley and UBS, had secured some large cornerstone investors in recent weeks. Estia’s team has met with fund managers in Singapore, Hong Kong, Boston, New York, London, Sydney and Melbourne over the past fortnight.
Estia is the fifth company Quadrant has listed in the past 18 months. The others – Virtus Health, Burson Auto Parts, iSentia and APN Outdoor – have all traded higher in the secondary market."

[mark100]

I have bid for some of these. I did well out of JHC and REG listed strongly despite being in the middle of the Sept mini plunge. It seems anything health or ageing related is popular right now. Maybe it's because it's the only sector where investors can clearly see growth at the moment. Unfortunately this popularity is driving sector PEs higher than where I think they should be. Medibank another example.
The XJO chart does not look nice which tells me I shouldn't be participating in another IPO but a lot of that is due to the mining sector. But the XHJ looks great!

[biker]

Book build closes today due to the demand. Fixed price 21x forecast profit. Quadrant getting rid of a much greater percentage. (down to 17%?)
Im in. And Medibank.

[Joshuatree]

Yes I'm trying to get some too.Goodluck.

[noodles]

I have bid for some of these. I did well out of JHC and REG listed strongly despite being in the middle of the Sept mini plunge. It seems anything health or ageing related is popular right now. Maybe it's because it's the only sector where investors can clearly see growth at the moment. Unfortunately this popularity is driving sector PEs higher than where I think they should be. Medibank another example.
The XJO chart does not look nice which tells me I shouldn't be participating in another IPO but a lot of that is due to the mining sector. But the XHJ looks great!
Lots of reasonably priced small caps in that space available to buy now: SDI, PGC, LHC (all have forward pe <12)
I think it is just IPO fever. Perhaps my reasonably priced small caps should de-list, change name, and relist at a 100% premium in the new year:)

[Joshuatree]

In The AFR a few hours ago. Shares are being offered at $5.75 or a multiple of 21 times npat CY2015. Raising $725 mill. Cant access the whole article.

[Westboy]

Lots of reasonably priced small caps in that space available to buy now: SDI, PGC, LHC (all have forward pe <12)
I think it is just IPO fever. Perhaps my reasonably priced small caps should de-list, change name, and relist at a 100% premium in the new year:)

The smaller ones don't have the growth profile of this business. Quality Business with Quality Management and not at a silly price IMHO

[Joshuatree]

The Goss I'm hearing is 40% scale back.

[Joshuatree]

Craigs have offered me a firm allocation today.

[mark100]

I got 70% of what I applied for

[Westboy]

I got 70% of what I applied for

I hate to say this but that is not a good sign IMHO!

[mark100]

I hate to say this but that is not a good sign IMHO!

Not necessarily so. I got 96% of Veda, 80% of Japara, 60% of Genworth and Healthscope so I regard 70% as about the norm for my allocations. Medibank is the only one I every really got squeezed on

[Joshuatree]

Got my full allocation today .There can't be many who applied for some in NZ; very little int says my broker.

[Joshuatree]

Hope this bit of news helps with listing

The Abbott government has hinted it could remove caps on nursing home beds, which would significantly boost the profitability potential of a trio of ASX debutantes in the $13 billion aged care sector.
Aged care minister Mitch Fifield on Thursday announced 11,196 new aged care beds had been approved, worth $660.5 million.
The government regulates residential aged care bed supply using a licensing system akin to the issuing of taxi licenses.
Demand in the latest round spiked to levels not seen since the final year of the Howard government in 2007.
It is understood some of this demand was driven by large private aged care businesses and newly listed companies.
Removing the cap would be a boon for Japara Healthcare, which listed on the ASX six months ago, as well as Regis Healthcare that floated in October.
A third provider, Quadrant Private Equity-backed Estia Health, is preparing for a $1 billion-plus float on Friday.
“The aged care sector is now being compared to where the private hospital sector was 20 years ago,” aged care minister Mitch Fifield told the Australian Financial Review.
“It is on the brink of a new era, filled with possibilities and new business challenges.”
The federal government funds aged care in two main ways: beds in residential facilities and support for people still living at home.
A total of 17,5000 new places were allocated across those two areas in the latest round.
Along with 11,196 residential beds there were 6653 home care places.
In line with the trend for people to want to remain in their homes longer, the government has promised to increase the number of home care places from around 66,000 to 100,000 nationally by 2017.
Demand for residential places is also forecast to rise significantly.
According to lobby group Aged and Community Services Australia, the nation will need 82,000 new aged care beds by 2020. That would mean opening two new 100-bed residential aged care facilities ever week over the next seven years.
The listed companies operate in the residential care space.
Senator Fifield left the door open to a fundamental shift away from a centralised licensing system to the removal of caps on how many beds the commonwealth supports.
“The holy grail for aged care providers is having an uncapping of aged care places,” he said. “It’s hard to have a truly consumer-driven sector in the absence of that.”
Yet this would have to occur within the existing funding envelope, Senator Fifield added.
“This will always be a mixed environment where there will be personal dollars contributed and taxpayer dollars contributed,” he said.

[biker]

IPO? Well I thought that went quite well really...........for Quadrant

[percy]

I note the code is EHE and the shares are trading at $4.87.
What was the issue price?

[mark100]

Don't ask! $5.75

[percy]

Don't ask! $5.75

Thanks Mark100.
Oh dear.!

[noodles]

Don't ask! $5.75

Any idea why?

Perhaps a higher proportion of staggers rather than institutions were given stock?

[mark100]

Any idea why?

Perhaps a higher proportion of staggers rather than institutions were given stock?

The sector went cold early in the week when Japara disclosed a payroll issue where they had underpaid overtime by $5m over the past 5 years or so, of which around $0.5m relates to this financial year. Not material with respect to their profit forecast but indicates their systems were not up to scratch and they got hammered. After that Regis, the main benchmark I've been comparing Estia to dropped 10% but bounced a little today. I knew it would affect the Estia listing but not to the extent of a 17% open day loss. So maybe there is some other news out there but I'm not aware of any.

The IPO market has been getting softer but I decided to have another crack here given the sector. Greed really! I haven't sold any at this stage

[Joshuatree]

Absoulutly no int from the get go today.A longer term play with plenty of growth in it .My post above re removing caps on nursing home beds will help if enacted upon. I think it will rerate(but i would say that).Disapointing start :confused:

[macduffy]

From "The Age".

http://www.theage.com.au/business/estia-health-founder-peter-arvanitis-defiant-despite-horror-asx-debut-20141205-1218wd.html

[cloggs]

And The Bull...

Listed on December 5 at a significant discount to its IPO price. Australia’s ageing population supports the aged care space. EHE intends to pay a dividend of between 4 per cent and 5 per cent on the IPO price of $5.75. With 3200 beds at 39 aged care facilities in Victoria, South Australia, New South Wales and Queensland, it’s the fourth largest provider of residential aged care in Australia. Additionally, EHE is well funded to make further acquisitions. The shares finished at $4.65 on December 10.

[biker]

Disappointing no int from the get go today.A longer term play with plenty of growth in it .My post above re removing caps on nursing home beds will help if enacted upon. I think it will rerate(but i would say that). Disappointing start :confused:

Disappointing start? An IPO that drops 20% in the first week is an embarrassing disaster IMO. Especially for the organising brokers ( Craigs et al) ) and actually also for Quadrant, the seller. Extremely damaging to their reputation. It would seem looking back on several, that in normal market circumstances, investing in IPOs should be ignored, with a strong likelihood they will be available for less, not far down the road. Why take the risk?

[Joshuatree]

meeting guida=nce ,tracking up some way to go

[Joshuatree]

$5.15 today so rerating continues . from the $4.50 bottom.

[Joshuatree]

Results out for 6 months

"On track to meet prospectus Forecast FY2015
1H FY15 Pro forma NPAT $19.9m, EBIT$28.5m,Rev $137.5m.
We are on track to meet full year prospectus forecast numbers and longer term are well positioned for growth in an industry that is expecting strong future demand for high quality aged care places across australia"

[babymonster]

it's pro forma tho...

[Joshuatree]

$5.43 finish am breathing easier now.

[Joshuatree]

$5.82 yay back in the black for the mo.

[mark100]

$5.82 yay back in the black for the mo.

Yeah great comeback. I bought a few back when they pre-released the results in late Jan but nowhere near enough to make back the IPO loss!

[mark100]

That's confidence from a director. 400,000 shares purchased on market at $5.85

[Joshuatree]

Still in this.Now $6.36 new high.4 new aged care centres, bought; total number now 49 with 4,127 beds. Target 10,000 by 2020.

[biker]

Still in this.Now $6.36 new high.4 new aged care centres, bought; total number now 49 with 4,127 beds. Target 10,000 by 2020.

Likewise Jt. Up 10% on IPO price in 5 months so return now OK, but the shareprice took a very convoluted and concerning route to get here! Congrats to those who have hung in and especially to those who bought in shortly after the IPO debacle.

[Joshuatree]

13.6c final div
FY15 NPAT $44.6 mill 5% up on prospectus
EBIT $61.8mill up on prospectus
Rev $297.5 mill ditto
Cash flow $88.5 mill $55.8 mill above prospectus
Acquisition of 550 places above Prospectus
Targeting NPAT and EPS growth 20% plus in FY16
Single room operating places to 94% across its portfolio of 48 fac and 4010 places.
Well set to achieve our target of 10,000 beds by 2020

[Joshuatree]

Craigs price target rises to $7.25 from $6.70 with a buy
"Rapid acquisitions and strong financials support growth aspirations"

[Louloubell]

Yeah, strong fundamentals and plenty of upside.

[Snow Leopard]

As this popped up on my list of shares setting new highs (yesterday) I thought I would give it the once over and have discovered something new to me.

Page 19 of the FY2015 Annual Report talks about "a revolving accordion facility".
This it turns out is not some 'son et lumiere contraption" to keep the inmates entertained between meals but a financial instrument: an expandable loan.

I am sufficiently wary of the difference between the pro forma profit of $44M6 and the statuary loss of $22M5 to reserve judgement on them for now.

But that aside my understanding is that "the plan" is to basically more than double their size mostly by buying existing facilities with a few brownfield and greenfield builds to top it off.

I will watch & wait, unless I doze off (until the accordion plays).

Best Wishes
Paper Tiger

[PartyPooper]

I've been following the ASX holiday parks/homes and retirement sector for awhile. From what most reports show they are all competing against each other to acquire existing facilities.

Haven't seen much planning or indication of how they will even start greenfield developments.

Once again Ryman Healthcare on the NZX seems to be the only company with a plan to have 5 villages built and completed in Australia by 2020.

I'd like to see more forward guidance from EHE and REG about growing the company via builds not capital raising to buy villages or taking of more and more debt.

[Joshuatree]

Craigs price target rises to $7.25 from $6.70 with a buy
"Rapid acquisitions and strong financials support growth aspirations"

Well hit $7.21 today a new high:t_up:. Bought 4 new facilities which will deliver further 256 single rooms by end 2016 giving total number of 58 facilities with 4,697 places

On track for 10,000 places by end of 2020

[Joshuatree]

$7.66 Accordian playing at the mo but think its hydrogen not air inside it.

[Joshuatree]

A sell off in this sector atm. EHE down 6.4%. Deutsche for one have price target cut by 2.7% to $7.30. Aged care sector heavily reliant on govt handouts and inquiry into it re poss reduction in subsidies etc. AOG held up better down 2.19 %. Certainly have had great run.

[Joshuatree]

EHE have missed their targets but say due to newly acquired homes which will add to earnings weighted to 2HF16 and also $4.9 mill of corporate costs above forecast to support accelerated growth and that this is now scalable with minimal incremental costs. Mkt dissaponted s/pdown 10% atp.

This article below could be a serious downdraft to EHE ,AOG REG AHC etc(RYM?) re subsidies.

Government clamps down on ACFI claims
By Darragh O'Keeffe (http://www.australianageingagenda.com.au/author/darragh/) on December 16, 2015 inGovernment (http://www.australianageingagenda.com.au/category/news/government-main/), Industry (http://www.australianageingagenda.com.au/category/news/industry/)

91​
(http://www.australianageingagenda.com.au/2015/12/16/government-clamps-down-on-acfi-claims/)
The long-running dispute between the Federal Government and aged care providers over budget blowouts in the Aged Care Funding Instrument has intensified, with the minister announcing almost half a billion in reduced subsidies and tough new fines for incorrect claiming.
In yesterday’s Mid-Year Economic and Fiscal Outlook (MYEFO) the government revealed it was cutting subsidies on certain claims in the ‘complex health care’ domain of ACFI to save $472 million over the forward estimates.
In a media release this morning Minister for Aged Care Sussan Ley said these claims were “consistently higher than expected and not consistent with claiming practices in other ACFI areas.”
She announced “a stronger compliance regime” including fines of $10,800 per offence for aged care providers “caught making repeated false claims under the ACFI.”
Ms Ley said figures showed as many as one-in-eight of 20,000 ACFI claims audited in 2014-15 were deemed to be incorrect or false. “This figure is already tracking even higher at one-in-seven in 2015-16,” she said.
“Unfortunately we’ve seen a concerning number of incorrect claims and unaccounted-for growth in spending in complex health care creeping into the system in recent years,” Ms Ley said.
The government referred to a “sharp practice” which it described as a claim that “may be legitimate when assessed strictly against funding guidelines, but takes advantage of ambiguities in the rules for maximum financial gain.”
The minister’s press release prompted a wave of mainstream media reports this morning of rorting among aged care providers, with one newspaper reporting facilities “overmedicating patients in order to extract more government subsidies.”
In addition to the fines, Ms Ley said there would be “new measures to ensure closer scrutiny of claims, including stronger auditing and IT system updates, as well as better education for aged care provider claiming requirements.”
This was intended to ensure fines were restricted to those providers who “had been caught making multiple, deliberate false claims, not genuine one-off mistakes,” she said.
Long-running dispute

The measures in the MYEFO come amidst ongoing talks between provider peaks and the Department of Health over ACFI claiming issues.
Two weeks ago the four national peak bodies representing aged care providers had sought assurances from the government that it would not act to reduce ACFI expenditure, after the funding instrument was found to have exceeded its 2014-15 budget by around $150 million.
It was the second time in three years that the ACFI has blown its budget, prompting another departmental review.
In a letter to Ms Ley dated 3 December, the CEOs of Aged and Community Services Australia, Catholic Health Australia, the Aged Care Guild and Leading Age Services Australia said their investigations with the Department of Health had identified a number of possible reasons for the growth in ACFI expenditure, “but none of the scenarios adequately make the case that the growth is not justified.”
They argued that downgrade statistics through the validation processes suggested that providers were “administering the ACFI reasonably.”
“We consider there is sufficient evidence to suggest the ACFI and ACFI processes are inherently flawed and/or the forecasting methods used to determine the expenditure envelope do not adequately factor in the environment of growing acuity, complex co-morbidity and longevity,” the peaks said.
Dispute over increasing ‘frailty’

In today’s statement Ms Ley said that claims by some in the sector that an increase in frailty in older Australians was to blame for the unexpected increase in ACFI claims was “not consistent with government data on claims for other ACFI-funded services, which had not increased anywhere near the same amount, despite also being affected by increasing frailty.”
A sharp increase in one year was also not consistent with genuine frailty growth, Ms Ley said.
Retraction from minister sought

Aged and Community Services Australia (ACSA) said that data had never been provided to the sector by the government to support the alleged misuse where it was occurring.
The peak said it was “appalled to see media reports of aged care providers allegedly ‘rorting’ or even being labelled ‘fraudulent’ in aged care subsidy claiming in the media today.”
ACSA said it would be contacting Ms Ley’s office to express its “very extreme concern” over the matter and asking that her office “provide a retraction to the media so the record can be corrected.”
The peak said it welcomed the government’s “more intense” regime as it knew the vast majority of aged care providers complied faithfully with the funding instrument.
‘Double-whammy effect’

Leading Age Services Australia said the announcement that further funding would be “ripped from aged care when growth in costs are three times what government recognises is extremely disappointing.”
CEO Patrick Reid said the peak body had warned government that ACFI growth was occurring faster than its projections because of significant increases in cost of care and an increase in people with higher care needs.
“Together these are creating a double-whammy effect which have not been adequately factored into the department’s forecast modelling.”
“Simply trying to curb expenditure by tinkering with the existing instrument does not address the real issue, it just transfers the increasing financial burden of higher care costs on to age service providers and pensioners,” said Mr Reid.
Want to have your say on this story? Comment below. Send us your news and tip-offs to editorial@australianageingagenda.com.au (editorial@australianageingagenda.com.au)
Subscribe to Australian Ageing Agendamagazine (https://secure.intermedia.com.au/index.cfm?page=mag.subscription&mid=19) (includes Technology Review)

[Joshuatree]

http://1.gravatar.com/avatar/4af2ca296b02c77c8ccee614f27b4342?s=50&d=identicon&r=G (http://findthemoat.com/?author=2)
A step closer to the end game (http://findthemoat.com/2016/06/03/step-closer-to-endgame/)by findthemoat (http://findthemoat.com/?author=2)


In light of yesterday's sharemarket rout of listed residential aged care players, triggered by the release of a BAML research report forecasting a potential 13% decrease in ACFI funding rates, I want to discuss briefly (1) ACFI claiming practices in the industry; and (2) balance sheet implications.
Aggressive ACFI claiming PracticesThe listed sector have thrived of late on constant increases in ACFI claims achieved per resident - at a rate of 10.7%, 8.0% and 8.7% per annum for Estia, Japara and Regis respectively.
http://findthemoat.com/wp-content/uploads/2016/06/Screenshot-2016-06-02-15.49.43.png
This is twice the growth rate that the government is comfortable with (as per below from its ACFI Monitoring Report):
http://findthemoat.com/wp-content/uploads/2016/06/Screenshot-2016-06-02-15.51.49.png
In fact, Estia brags about its ability to claw higher ACFI payment per resident out of the government under its ownership, charging the Australian Government 15% more per resident within 6 months after acquiring a new facility.
http://findthemoat.com/wp-content/uploads/2016/06/Screenshot-2016-06-02-15.27.52.png
How? Apparently through "improved documentation and compliance standards":
http://findthemoat.com/wp-content/uploads/2016/06/Screenshot-2016-06-02-15.27.39.pngProbably not the most prudent assertion for Estia to have made in the public domain in an environment where the government states explicitly in its most recent Mid Year Economic and Fiscal Outlook (http://www.health.gov.au/internet/budget/publishing.nsf/Content/MYEFO-agedcare-provider-funding) that:

Expenditure on residential aged care subsidies under the ACFI for 2014-15 has exceeded budget estimates by approximately $150 million. This level of growth is not sustainable for Government. It is clear that the growth is being driven by claims in the complex health care domain which are higher than can be explained by the increase in the frailty of residents.
While the overwhelming majority of ACFI claims from aged care providers audited by the Department of Health are correct, one-in-eight of 20,000 checked last year (2014-15) were deemed to be incorrect or false. This figure is already tracking even higher at one-in-seven in 2015-16.
Balance Sheet FragilityGiven that more than 70% of industry revenue is derived from the government, industry economics is obviously hugely sensitive to changes in government policy. The apparent sector-wide "EPS reductions of -19% to -27% by FY2019E" (taken from BALM research report at face value) from a seemingly small revision in the May Federal budget is demonstrative of this.
As we've established in my previous article (http://findthemoat.com/2016/05/17/aged-care-sector-leverage/), balance sheet assets of Estia, Regis and Japara comprise a huge amount goodwill from acquisitions, without which Net Assets are actually negative or close to negative.

http://findthemoat.com/wp-content/uploads/2016/05/Screenshot-2016-05-16-11.47.23.pngNote: Regis numbers Incorporates Masonic Care Acquisition

Now, goodwill valuations are typically justified via cashflow projections - refer below for Estia's impairment testing guidelines:
http://findthemoat.com/wp-content/uploads/2016/06/Screenshot-2016-06-02-16.21.04.png
It is then not too difficult to see a scenario where, given any deterioration in industry conditions, a material amount of balance sheet goodwill is deemed impaired especially in context of huge acquisition multiples having been paid for those assets in question.
Note that a significant portion of those goodwill assets have been paid for using liabilities in the form of Refundable Accommodation Deposits (lent to the providers by its residents).
This could very well wreck havoc on already thinly capitalised Balance Sheets.
Here's my original detailed article on Leverage in the Australian Residential Aged Care Sector (http://findthemoat.com/2016/05/17/aged-care-sector-leverage/).

[babymonster]

debt is an issue? I know little about ehe just heard someone mentioned it a few days ago

[Joshuatree]

http://findthemoat.com/2016/07/29/estia-magic-roce-equation/

Conclusion atp lose /lose.

[Joshuatree]

PDF (http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01772429) Results out looks ok( on my shallow look thru) and outlook too. EBITDA 2.4% below guidance.Underlying NPAT -7.5%. Final div 12.8c total 25.6c
Outlook EBITDA at least up 13%
Govt changes to ACFI , initiating actions to rebalance the impact in intieo of co contribution rec streams and cost reduction. Recovery in s/p?I hope so

PDF (http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01772429)

[Joshuatree]

Earnings re 10% below expectations; punished down another 13% today 40c to $3.57 cum a half year div of 12.8c. Uncertainty re Govt smack ahead.

[Joshuatree]

Cut my losses on this and left. i see norah barlow ex Summerset has just been appointed acting CEO!!

[clearasmud]

Cut my losses on this and left. i see norah barlow ex Summerset has just been appointed acting CEO!!

So why did you sell now?

[Joshuatree]

Hi clearasmud; no quick fix imo.

High chance of a cap raise which i don't want to do; dilution.
EHE have been accused of fiddling; misreporting to get more subsides
The federal health ministry may drop subsidy rates further. A few quotes below.

"And it looks to me that the operators are able to bear substantially lower government rates of payment before it affects their incentive and ability to:

1.) maintain the quality of care, and
2) continue to re-invest in their businesses.

Profitability can halve and the ROC will still be highly attractive.

My concern for this sector is that there is a risk than the Federal Health Ministry becomes increasingly aware of this and responds accordingly."


"Because EHE is currently generating a Return on Tangible Assets in excess of 40%.

Which looks to me like the government is being, not tight-fisted at all, but unequivocally generous."

No quick fix here and this could drag on for some time.My money is better elsewhere.T/A wise the warnings were there. i sold some luckily earlier for another opp. Sure there could be a short term lift in price but I'm not taking the risk any longer.
Just my opinion DYOR.

[clearasmud]

Thanks Joshua.
I noticed EHE has negative net tangible assets which I don,t particularly like to invest in.