REG Details

Regis Healthcare Limited (ASX: REG) is a healthcare services provider for old-aged public, mainly providing retirement villages, care facilities, home care and day therapy. REG was incorporated in 2007 and holds market capitalisation of $538.49 million as of 29^th November 2021.

Recent Updates:

• Malcolm Ross got appointed as General Counsel and Company Secretary with effect from 8^th November 2021.

FY21 Key Results Highlights:

• Increase in Revenues: In FY21, the company reported revenues from services of $701.4 million, up by ~3.5% Y-o-Y Vs $677.9 million in FY20. This was primarily attributed to government grant of $6.8 million and $5.4 million from Royal Commission aid in FY21. Average occupancy rate slightly improved to 88.9% from 88.2% posted in the prior year.
• Slump in EBITDA: In FY21, the company reported a decline in EBITDA of 2.7% Y-o-Y from $141.6 million in FY20 to $137.8 in FY21. This was owing to increase in staffing, costs related to infection control and employee welfare.
• NPAT Transformation: It converted its Net Losses of $0.7 million for the year ending FY20 to Net Profit of after tax of $19.94 million for the period ending FY21. Profit on sale of asset totalling $9.2 million boosted the profitability.
• Dividend: REG declared a final dividend of 4.63 cents per share (50% franked) in FY21, with a payment date of 30^th September 2021.
• Decline in Net Debt: A decrease in net debt has been reported from $236.7 million at the end of FY20 Vs $142.4 million at the end of FY21.
• Cash Balance Details: The cash balance at the end of FY21 was reported as ~$3.88 million Vs ~$3.80 million at the end of FY20.

Profitability Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company’s revenue gets directly affected by the government funding programs and is subject to the regulatory oversight.

Outlook: The government has set out a $17.7 billion aged care reform package with a view to bring quality aged care in Australia. Of this, $7.5 billion will be diverted to home care and $7.8 billion to residential aged care. REG is expected to benefit from the government programs and will be utilized to support its capital expenditure plans.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has provided negative returns of ~10.80% and is trading lower than the average 52-week price level band of $1.585 and $2.400. The stock has been valued using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering an uptick in occupancy levels and government funding, the company can trade at some discount to its peers. For the purpose of valuation, peers like Estia Health Ltd (ASX: EHE), Ansell Ltd (ASX: ANN), Cochlear Ltd (ASX: COH) and others have been considered. Considering the company’s improved profitability dividend payout, funding package for aged care in Australia, current trading levels, and valuation, we give a “Speculative Buy” rating on the stock at the current market price of $1.755, as on 29^th November 2021, 11:00 AM (GMT+10), Sydney, Eastern Australia.

REG Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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