The unexpected announcement of a royal commission into the aged care sector has investors worried with suggestions the finding could be similar to that of the inquiry into the financial services sector.
With Australia experiencing, in common with many other developed countries, an ageing population, the aged care business is clearly one with good prospects. Aged care and retirement living is now a hot mini-sector on the stock market, as investors hone in on the companies that offer services to the estimated four million-plus Australians born between 1946 and 1961.
An ageing population is a major demographic and economic issue affecting most advanced economies around the world and Australia is no exception. In today's Investing Report, we highlight eight stocks we believe are best placed to benefit.
UBS updates the main earnings drivers, including average occupancy in the second half, now estimated at 92.2% versus 93.6% in the first half. Second half government revenue per occupied bed is up 7% and second half staff costs per occupied bed are up 2%.
The company has acquired Riviera Health, a residential aged care provider that currently operates four facilities across New South Wales. Japara has paid around $39m net of bonds for the acquisition, funded from existing cash and debt.
The company has downgraded FY18 guidance after deciding to follow Regis Healthcare’s ((RHC)) lead and refund all capital refurbishment deductions charged to residents since 2015. UBS had envisaged a risk for the company after the Federal Court ruling.
UBS channel checks suggest the aged care sector is capable of mitigating at least 50% of the cuts to the aged care funding instrument via higher occupancy, reclassification and revenue for additional services.
Morgans has reviewed the changes to aged care funding. The major change is effected on January 1 2017, applying to new appraisals or re-appraisals of existing residents.
The broker expects operators to be able to partially offset reduced growth in government payments by higher fees. Morgans moderates forecasts from FY18 but believes the concerns over funding pressure are overdone.