Estia Health Limited

EHE Details

FY20 Financial Highlights: Estia Health Limited (ASX: EHE) is a residential aged care operator. As on 20 October 2020, the market capitalization of the company stood at ~$373.65 million. During FY20, the company reported a decline of 18.9% in EBITDA on mature homes to $79.3 million. This was because of a period of margin compression and market volatility arising as a result of COVID-19. During FY20, NPAT of the company went down by 39.5% to $116.9 million and net liquidity of the company stood at $226.6 million, representing cash and undrawn credit lines.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company has invested $80.6 million FY20, resulting in increased bed capacity while continuing the organisation’s refurbishment program focused on enhancing the resident experience. While the short-term community and sector impacts highly unpredictable, the company seems to be well-positioned to benefit in long term.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The ageing of the Australian population and in particular the ageing of the “baby boomers” is expected to see a marked increase. Thus, the Australians are likely to need more aged care in the coming years. As per ASX, the stock of EHE is inclined towards 52-weeks’ low level of $0.905 and gave a return of 3.34% in the past six months. The stock is offering a decent opportunity for the investors to enter the market. On a technical front, the stock of EHE has a support level of ~$1.263 and a resistance level of ~$1.706. We have valued the stock using the P/E multiple based relative valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the current trading levels, decent returns in the past six months, and modest long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.390, down by 2.798% on 20 October 2020.

EHE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Regis Healthcare Limited

REG Details

Healthy Balance Sheet: Regis Healthcare Limited (ASX: REG) is a residential aged care provider. As on 20 October 2020, the market capitalization of the company stood at ~$296.26 million. During FY20, revenue from services went up by 4.8% on pcp to $677.9 million but underlying EBITDA was down by 23.6% to $85.1 million. In the same time span, REG reported an average occupancy of 90.3% across steady-state residential aged care homes and generated net operating cash flow of $127.2 million including net RAD receipts of $69.8 million. In the same time span, the company reduced its net debt by $66.5 million to $236.7 million.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company is focused on strengthening key business drivers including occupancy, income generation and cost disciplines and is optimizing its business portfolio mix and identification of growth areas to focus investment and resources.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: REG will continue to maintain resident care standards and optimize business performance despite the difficult challenges faced by the industry. As per ASX, the stock of REG gave a negative return of 32.97% in the past six months and a negative return of 10.4% in the past one month. The stock is also inclined towards its 52-weeks’ low level of $0.735, proffering a decent opportunity for accumulation. On a technical front, the stock of REG has immediate support level of ~$0.943 and a resistance level of ~$1.404. We have valued the stock using the EV/EBITDA multiple based relative valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the current trading levels, decent returns in the past six months, and modest long term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.945, down by 4.061% on 20 October 2020.

REG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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