Why Is Japara Healthcare Edging Up On ASX?

Up 1.78% on November 01, 2018 (1:50 PM AEST), Japara HealthCare Limited (ASX:JHC) had its annual general meeting organized as on October 31, 2018, addressing all its shareholders. Management provided a brief review on FY18 operations and management’s strategy along with new developments undertaken for FY19.

In a challenging operating environment for aged care providers, company maintained its progress in line with its business strategy. 3% increase in total revenue up to $373.2 million was posted for FY18. This growth however was backed by the prior year completion of the development projects and the acquisition of the Riviera health homes as on April 1, 2018. One of the biggest highlights that remained focused this year was the expansion of portfolio of Sydney region through the acquisition of four operating homes, getting bed licenses and vacant land from Riviera health. The acquisition included the conversion of the multiple bed wards into single rooms and hence complete reconfiguration of the homes by providing improved amenities and living spaces to the residents.Â

Wage hike along with the absence of the indexation on Federal government care funding along with spread of severe influenza nationwide resulted in drop in occupancy rate that has overall impacted the revenues to significant level. 15.8% drop in EBITDA up to $50.7 million was reported during FY18 as compared to the previous year. Weak earnings were reported overall. Company worked on its long-term strategy all through the year and continued its investment round the year. Company has invested around $108.2 million in FY18. The amount was majorly spent on land and in the improvement of existing aged care homes and in the development of new homes. The investment activity was partly financed through RAD cash flows of $41.6 million. Company has extensively utilized its debt facilities in FY18, and $116.3 million was the total amount of debt drawn as on June 30, 2018. The debt amount included $30.3 million of core debt and $86 million of debt for the program development. Company has maintained its 100% compliance record ensuring nineteen of the company’s homes were reaccredited successfully during FY18. Improved occupancy level with level over historical points was noticed by June 30, 2018.

Japara has several projects in hands which are nearing completion stage by year end. It has five brownfield and 12 greenfield projects which are expected to complete by year end. The development program is expected to deliver approximately 1200 net new places by FY2022, and this will contribute significantly towards the projected growth as expected by the management long term strategy plan for contributing towards needs for the care of elderly Australians.

The development program is expected to deliver approximately around 300 beds on yearly basis, which will contribute towards earning growth and keep the debt levels at manageable levels. Company is banking on the acquisition of the Riviera which is expected to contribute around $3.5 million towards EBITDA in FY19.

Existing assets of the company along with the Riviera acquisition make a strong portfolio for the company. Well laid strategies of the company to grow through the selective acquisition and to provide care to elderly Australians will attract investors confidence in the Company which is currently trading at the levels of $1.145, post witnessing the challenging environment of the aged care industry.

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