Australian aged care provider Regis Healthcare (ASX:REG) announced net profit after tax (NPAT) of $53.1m for FY15 and declared a 17.6 dividend to shareholders.
Even though the result was ahead of expectations, investors sold off REG following the announcement, which is likely due to its high valuation. Based on Regis’ earnings per share (EPS) of 17.7 cents and the last traded share price of $5.86 (as of 11am AEST), REG is trading at a price to earnings (P/E) ratio of 33, well above the market average of 15. The relatively high P/E ratio indicates high expectations of earnings growth as investors are willing to pay a significant premium for REG.
Pro format revenue for FY15 was $439m, resulting in EBITDA of $93.6m. Revenue was 2.7% higher than the guidance provided in the prospectus while EBITDA exceeded the guidance by 7.8%. The aged care provider achieved strong positive operating cashflow pf $152m resulting in a cash balance of $60.9m as of 30 June 2015.
hree acquisitions were completed adding 444 places to Regis’ portfolio, which brings the total operational places to 5,034 as of 30 June 2015. Management expects the growth momentum to continue as the acquisitions will contribute to earnings during FY16. Regis also expects “higher accommodation supplements from significantly refurbished facilities and new places.”
A final dividend of 17.3 cents per share was declared, payable on 21 September 2015.
Is it too late to buy Regis Healthcare?
Regis Healthcare offers an attractive mix of capital growth and income. Population demographics, industry structure, and the Company’s financial trajectory are attractive qualities. However with over two thirds of operating revenue derived from Government contributions, adverse policy changes could have a significant impact on the Company’s financial performance. Whilst profitable, Regis Healthcare utilises refundable accommodation deposits (RAD’s) to finance development of new facilities.
Since listing at $3.65 in October 2014, the share price has risen ~61%. The P/E ratio of 33 indicates that investors are willing to pay a significant premium to its current net value due to its favourable outlook. The health care sector has traditionally a higher price to earnings ratio than the broader market, however REG’s appears to be ‘priced to perfection.’
Regis’ outlook remains positive, however significant variations to the current growth target are need in order to push the stock significantly higher. Wise-owl will continue to monitor REG as any weakness in its share price could potentially be a buying opportunity, but at current prices our general recommendation is ‘hold’.
Author: Imran Valibhoy
Aug 28, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.