• Decrease in government spending could hurt the stock sentiment: Estia Health Ltd(ASX: EHE) stock recovered over 9.9% on September 07, 2016 after falling over 44.6% in the last four weeks (as at September 05, 2016) while the company has released an initial substantial holding notice (by John Emery Kennedy and others). The stock was under pressure as the group’s results were not able to meet their guidance for net profit. The group’s underlying net profit after tax rose 16% year on year (yoy) to $51.8 million in fiscal year of 2016, which is slightly below the estimates. But, the top line rose 50% on yoy basis to $446.5 million in fiscal year of 2016 as the group’s optimisation efforts coupled with growth from acquisitions paid off. Moreover, Estia’s margins improved in the second half due to integration of acquired homes (47.5% places in transition at start of period). On the other hand, the decreased spending by the government who funds the aged care operators through the Aged Care Funding instrument (ACFI) remains a major challenge. EHE is also trading at a slightly higher P/E despite the stock fall.
• Recommendation: We give an “Expensive” recommendation on the stock at the current price of $3.22

• Ongoing demand for infant formula:a2 Milk Company Ltd (ASX: A2M) stock surged over 7.7% on September 07, 2016 after witnessing some downfall post its earnings release. The group seemed to have delivered a decent performance enhancing its net operating cash flow to $21.5m, as compared to ($8.1m) in prior corresponding period. The group’s Infant formula comprise 61% of group revenue, and rose from 27% against pcp. There is potential at the back of ongoing success of a2 Platinum® in China given its strong brand value and the overall ongoing demand for the group’s A2 protein.
• Recommendation: Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $2.03

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