Outlook for Health Care Stocks - Service Providers and Aged Care

  • Jan 07, 2020 AEDT
  • Team Kalkine
Outlook for Health Care Stocks - Service Providers and Aged Care

Through the budget FY20, the Australian government targeted towards ensuring the access of necessary care and support for older citizens whether they prefer to reside in their own residences for longer or require residential aged care.

Under the Budget 2019-20, the Government committed a record funding of approximately $21.6 billion towards strengthening the quality, safety, and integrity of the aged care system in the country. The government is continuously aiding high-quality care for Aussies and in lieu of which, it also provides approximately $320 million in general subsidies for residential aged care.

Approximately 70% of the cost directed towards aiding an aged care resident is currently contributed by government funds rather than residents.

From the below mentioned graph highlighting government spending on aged care services, by spending type in Australia, from 2012–13 to 2017–18, it can be concluded that in the past few years, the government spent maximum on residential care followed by home care and support.

In this article, we are discussing three aged care and health care service providers - Summerset Group Holdings, Ramsay Health Care and Regis Healthcare, with their plans for 2020.

Summerset Group Holdings Ltd (ASX: SNZ)

ASX-listed health care sector player, Summerset Group Holdings Ltd (ASX: SNZ) operates and develops retirement villages in New Zealand. The group has more than 25 retirement villages across the country, offering independent living and several aged care options. The group caters to over 5,000 residents.

Summerset Group won Silver Award of the Reader’s Digest Quality Service in the year 2019. Currently, in the Auckland region, the company operates five villages, and in Milldale and Parnell, two villages are in the planning phases.

During the 2019 interim period, the company delivered 139 new homes and was expecting to deliver nearly 350 homes during the year. Moreover, the company plans to complete additional 150 retirement units in the first half of 2020.

Summerset Group Gets Green Light for Retirement Village in St Johns

In late-November 2019, the company announced to have received the green light for its proposed St Johns retirement village, after securing approval of the resource consent by the Environment Court, and on this decision, no appeals were received. The St Johns village would provide a residence for more than 400 residents.

Meanwhile, the company unveiled the purchase of 9 hectares in Prebbleton, southwest of Christchurch, for a retirement village.

Stock Performance

On 07 January 2020, the SNZ stock closed the day’s trading at $8.610, down by 0.232%. The company’s market capitalisation stood at approximately $1.96 billion, with nearly 226.83 million shares outstanding and annual dividend yield of 1.13%. The 52 weeks high and low price of the stock was noted at $8.700 and $5.100, respectively. The stock has delivered a positive return of 48.28% in the last one year and 62.83% in the last six months.

Ramsay Health Care Limited (ASX: RHC)

New South Wales headquartered global health care company, Ramsay Health Care Limited (ASX: RHC) is a acute and primary health care services provider, offering services from 480 facilities across 11 nations, including the United Kingdom, Australia, France, Italy, Indonesia and Malaysia. Ramsay caters to a wide range of health care requirements from primary services to extremely complex surgeries, as well as rehabilitation and mental health care.

Appointment of Group CFO

In mid-December 2019, Ramsay updated the market with the appointment of new Group CFO, Mr Martyn Roberts. Mr Roberts would commence in the role in H120. Presently, he is working as Group CFO in at Coca-Cola Amatil and prior to Amatil, he had served for seven years at Woolworths Ltd at several senior executive roles.

Mr Roberts is an accomplished CFO with 20 years’ experience, and his experience and achievements would be valuable for Ramsay to accomplish its set goals for 2020, according to Ramsay Managing Director Craig McNally.

Outlook

  • Ramsay Health Care expects stronger volume growth in the financial year 2020.
  • The company would continue to target core earnings per share (EPS) growth on a like-for-like basis of 2-4% in the fiscal year 2020 and this corresponds to negative CORE EPS growth of -6 to -4% under the accounting standard AASB16 of the latest lease.
  • RHC’s guidance is based on core EBITDAR growth of 8-10%, which is not affected by the parameters of the new lease.
  • During the fiscal year 2020, the company would also target to complete its major Brownfields project.

Stock Performance

On 07 January 2020, the RHC stock settled at $73.850, up by 1.47% from its previous closing price. The company’s market capitalisation stood at approximately $14.71 billion, with nearly 202.08 million shares outstanding and annual dividend yield of 2.08%. The 52 weeks high and low price of the stock was noted at $74.850 and $56.220, respectively. The stock has delivered a positive return of 26.49% in the last one year.

Regis Healthcare Limited (ASX: REG)

ASX listed and one of the largest aged care providers in Australia, Regis Healthcare Limited (ASX: REG) also offers home care services, day therapy and day respite services. Moreover, the company provides access to retirement villages with the highest standard of care. The company’s service portfolio includes respite care, ageing-in-place, palliative care and specialist dementia care. The company boasts near about 63 aged care facilities, caters to more than 6,700 residents, and owns and and operates six retirement villages.

Revised FY20 Guidance and Trading Update

The company informed the market on its trading update and revised fiscal year 2020 guideline.

The quick summary from this update is as follows:

  • The company notified that the fiscal year 2020 guidance has been lowered, on account of continued industry pressure on occupancy.
  • Further, Regis informed that on a continuous basis, occupancy has seen a decline.
  • As at December 2019, the fiscal year to date occupancy was reported 92% and as at 17 December 2019, the spot occupancy was decreased to 91.5% compared to 92.4% as at 30 June 2019 due to constant challenges in industry conditions and is consistent with sector experience.
  • Recent Australian Institute of Health and Welfare report on the Summary of ROACA for FY2019 and the Aged Care Financing Authority 2019 revealed that occupancy of the industry stood at 89.4% for the fiscal year 2019, the lowest in three years.
  • The company revised guidance for FY2020 to a normalised EBITDA of circa $92 million and normalised NPAT of circa $28 million, assuming no further significant fall in occupancy during the fiscal year 2020. The normalised EBITDA and normalised NPAT, according to the previous FY2020 guidance, was circa $105 million and of circa $38 million, respectively.

The company is scheduled to release half year results on 26 February 2020.

CFO Appointment

In early December 2019, Regis Healthcare Limited unveiled the appointment of Mr Rick Rostolis as CFO, who would commence his role by May 2020.

Mr Rostolis has more than 10 years’ experience in ASX listed companies as CFO and CEO and his most recent role is CFO with Pro-Pac Packaging Limited. With Rick’s proven track record as a senior finance leader in ASX listed companies, he is expected to bring extensive experience and skills to the company.

Stock Information

On 07 January 2020, the REG stock closed the day’s trade at $2.570, up by 4.049%. REG’s market capitalisation stood at approximately $742.85 million, with nearly 300.75 million shares outstanding and annual dividend yield of 6.17%. The 52 weeks high and low price of the stock was noted at $3.515 and $2.410, respectively.


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