# EHE - Estia Health



## System (4 December 2014)

Estia Health is one of the largest private providers of residential aged care services in Australia, currently with 39 facilities and 3,203 places across the states of Victoria, South Australia, New South Wales and Queensland. In addition, Estia has contracted to acquire a further 410 operating places at five facilities. Three of these acquisitions are expected to complete prior to Estia's IPO and the remaining two are expected to complete by February 2015.

http://www.estiahealth.com.au


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## futurenow (29 January 2015)

Dropped ~10% in 2 days but then recovered yesterday.

With many more of the population hitting aged care this might be a stock to watch.


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## Gordon7 (1 April 2015)

*EHE *is in the same aged care/retirement home business as *REG *and *AOG *(as examples) and both of these stocks have done very well over the past few months. This gives me a little more confidence in EHE as a possible break out trade, not that I needed that as the chart looks good in its own right.


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## piggybank (1 April 2015)

Hi Gordon,

Thanks for alerting us to this stock. Having listen to a few of the "experts" (in the past month) on your money your cal - shares on Foxtel. It appears that the health sector is one of very few sectors that they say will be relatively safe in the coming months especially if the big *R* raises it head (which personally I think we are already at the start of a recession). I had a quick look at their presentation (1H FY2015) that took place on Feb 19th which must have pleased the market - hence the rise in the price. They have also made an 80 bed acquisition in the Adelaide metro area commencing next month.

It would be nice to hear of some of the fundies here as to what they think of the stocks present finances and do they think it as a bigger future to look forward to?

Here is the presentation - http://www.stocknessmonster.com/news-item?S=EHE&E=ASX&N=419215

Cheers
PB


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## peter2 (5 October 2015)

EHE: continues to step up. A close >7.00 may signal the next swing higher. Although we've traded this in the ASX Momentum thread it's more suited to a medium/long term trade/investment.


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## orr (6 June 2016)

A lot of stock loaned on EHE as I post. What those that now owe are doing with? would of course be speculation.  I'm open to thoughts of others on EHE mid-term prospects.... Thanks orr.
_'carefull what your doing with that catheter nurse'...._


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## McLovin (6 June 2016)

orr said:


> A lot of stock loaned on EHE as I post. What those that now owe are doing with? would of course be speculation.  I'm open to thoughts of others on EHE mid-term prospects.... Thanks orr.
> _'carefull what your doing with that catheter nurse'...._




I think there's a bit of skepticism about how they fund the business. Most of the funding is through "refundable accomodation deposits" (ie the deposit a new resident makes when they enter an EHE facility). As I understand there is a bit of a change occurring in how residents prefer to fund their stay. The move is away from large deposits to smaller deposits with a higher daily rate payment. Why does it matter? Well they have $1.375b in assets funded by $551m in interest free RAD liabilities. That's a lot of free capital which is great as long as you're able to "refinance" it when a resident passes away or moves on. But if the trend is toward lower deposits and higher daily fees then there will be a funding gap at some point in the future, and that could really put a brake on the growth of the business. You mix that with pretty aggressive acquisition strategy and plenty in their development pipeline it really heightens execution risk, imo. I haven't really dug too deep on EHE. It's got a lot of moving parts at the moment. Greenfield/brownfield development, acquisitions. Pretty hard to get a handle on where the business is.

I'm not sure on this, but I believe the regulations on the use of RADs were somewhat relaxed a few years ago. Whereas previously they had to be kept in cash or cash like assets now they can be used like ordinary capital.


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## Ves (7 June 2016)

Don't have time to look at this in detail right now.... but McLovin has touched on a few very important issues.  Very correct that the government did change the rules in recent years and the lump sum Residency Deposits can be used like ordinary capital.  Regis, Japara and Estia all had IPOs after this period.

Another risk is changes to government subsidisation.   The Federal Budget did include some cuts in this area,  and whilst they probably will only have a minimal effect if they are implemented,   there is a risk of future legislative risks.


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## pixel (7 June 2016)

Resistance has held, so no buy signal arose. Just as well, looking at today's sell-off.




http://www.theaustralian.com.au/bus...s/news-story/46dadf7dd0b3070ecff62847d713e2af

I don't know what, if anything, the threatened "Audit" might reveal, but given the Government's attitude towards the sick and needy, the timing of it could well be election-related. Prepare for accusations of "rorting" to pop up and be used as "justification" to cut funding for Health and Aged Care even more.


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## VSntchr (7 June 2016)

Ves said:


> there is a risk of future legislative risks.



The payroll tax which is currently refunded is another one that looms for these guys...


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## McLovin (7 June 2016)

Sell-off today sparked by this...



> Hedge fund VGI Partners, famed for shorting law firm Slater and Gordon, finally confirmed on Tuesday it was heavily shorting the stock but declined to give its reasons.
> 
> "It is correct that VGI has a short position in Estia as has been previously reported by Fairfax," a VGI spokesman said.





Read more: http://www.afr.com/real-estate/aged...horters-jump-in-20160607-gpdb5t#ixzz4ArUZPkw0


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## Ves (7 June 2016)

VSntchr said:


> The payroll tax which is currently refunded is another one that looms for these guys...



Am I correct in saying the Federal Gov cut the payroll tax supplement from 1 January 2015 and left it up to the separate State Govs as to whether or not they wanted to exempt aged care providers?

I believe Victoria may have decided against the exemption and aged care providers already pay payroll tax there.


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## Ves (7 June 2016)

McLovin said:


> Sell-off today sparked by this...
> 
> 
> 
> ...



My understanding is that it is possible that the big groups like Estia who are consolidating the industry were making acquisitions of smaller players and increasing the amount of grant applications to make these entities more profitable post-acquisition.

Hard to confirm this sort of thing.  But does it sound familiar to another industry?


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## McLovin (7 June 2016)

Ves said:


> My understanding is that it is possible that the big groups like Estia who are consolidating the industry were making acquisitions of smaller players and increasing the amount of grant applications to make these entities more profitable post-acquisition.
> 
> Hard to confirm this sort of thing.  But does it sound familiar to another industry?




Can you expand on the first paragraph, mate? Is this related to ACFI?


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## Ves (7 June 2016)

McLovin said:


> Can you expand on the first paragraph, mate? Is this related to ACFI?



Here's a new article from this morning.

http://www.theaustralian.com.au/bus...s/news-story/46dadf7dd0b3070ecff62847d713e2af



> The firm, listed on the Australian Securities Exchange by its private equity owners nearly two years ago, is understood to be one of several providers in line for targeted Department of Health *audits.
> 
> The news hit Estia shares, which fell more than five per cent in early trade today. Shares in the company lost 28c to $5.
> 
> ...


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## McLovin (7 June 2016)

Thanks Ves

That sheds some light on these slides which I thought made things look a bit too easy, especially when you're getting money from the government.


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## Ves (7 June 2016)

McLovin said:


> Thanks Ves
> 
> That sheds some light on these slides which I thought made things look a bit too easy, especially when you're getting money from the government.



Yep, seems like the firm shorting it noticed this fact when it was $7  (and also probably the funding risks).

Estia claim that the Gov funding per person is going up because they have more expertise than the smaller providers from whom they purchased the assets.

How could an outsider ever know the truth to base an investment decision on?

Seems like a massive red flag to me.


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## McLovin (7 June 2016)

Ves said:


> Yep, seems like the firm shorting it noticed this fact when it was $7  (and also probably the funding risks).
> 
> Estia claim that the Gov funding per person is going up because they have more expertise than the smaller providers from whom they purchased the assets.
> 
> ...




I agree. It's a very hard company to look into from the outside. There's so much going on. From what I understand they have been converting double rooms to singles. I assume when two people share a room the room rate is higher but the revenue per bed is lower. So they transfer bed licenses around within the group to maximise returns. I believe they are also claiming higher daily rates because they have "refurbished" the facility. I wonder how long the refurb rate lasts for?




"Dim lighting and cheap fabrics, that's how you move merchandise" 

- Morty Seinfeld.


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## McLovin (7 June 2016)

Ves said:


> Here's a new article from this morning.
> 
> http://www.theaustralian.com.au/bus...s/news-story/46dadf7dd0b3070ecff62847d713e2af




Not to parse statements unnecessarily, but the announcement by the company this afternoon denies that they are under audit over their ACFI claims, however the article in the Australian only really implies that in the future it will be audited. Probably nothing, but I thought it was an interesting distinction.



> The firm, listed on the Australian Securities Exchange by its private equity owners nearly two years ago, is understood to be one of several providers in line for targeted Department of Health *audits.


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## orr (7 June 2016)

Thanks for your work fella's , I feel like I've more eye's than a pineapple.... My inquiry was based on the percentage of  loaned EHE stock, which, yesterday, was in percentage terms one of the highest on the Asx. 
Outwardly the short selling of EHE from it's previous levels appears to be a more than sound endeavour.
thanks again orr...


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## skc (7 June 2016)

Ves said:


> Estia claim that the Gov funding per person is going up because they have more expertise than the smaller providers from whom they purchased the assets.
> 
> Seems like a massive red flag to me.




Agree. Sounds like a load of BS to me. Found this good blog highlighting issues with the aged care sector.

http://findthemoat.com/2016/06/03/step-closer-to-endgame/

The blog highlighted this bit in EHE's report.





Basically EHE is saying they somehow know that residents in their acquisition targets need more care (and hence higher subsidy)... before they make the acquisition. Or may be they just pick targets with a low ACFI per bed and go for it.

I don't know how one assess the conditions and care required for each resident. But it seems that the self assessment by the care provider is rife with rort potential.

Looking at EHE's announcement today... It says "Estia has materially more accurate cliams than the industry average with a significantly lower error rate of in in 14 vs industry average of 1 in 8".

Now if EHE has such a low error rate and yet it claims higher ACFI per bed than the industry... it implies that it's residents must, on average, be in the higher care category. Is there any reason to suggest that should be the case "naturally"?

It's starting to remind me of the VET sector... government funding, self reporting, ineffective audits, raft of private equity floats. For the record the first VET bombshell exploded ~12 months after listing. While EHE/JHC/REG have been listed for ~18-24 months.


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## Ves (8 June 2016)

skc said:


> Agree. Sounds like a load of BS to me. Found this good blog highlighting issues with the aged care sector.



Thanks for the link,  provides a very detailed look at some of the issues that are being discussed.  Looks like the same blog had some earlier posts too. 

I agree,  it definitely reminds me of the VET sector.   At least the vibe of it.

I don't know about you guys,  but 1 in 14 claims,  whilst being less than 1 in 8, seems to be fairly high for so called experts.


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## galumay (8 June 2016)

I have been interested in investing in this sector but so far none of the businesses have struck me as worthy of my hard won capital!


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## Miner (8 June 2016)

skc said:


> Agree. Sounds like a load of BS to me. Found this good blog highlighting issues with the aged care sector.
> 
> http://findthemoat.com/2016/06/03/step-closer-to-endgame/
> 
> ...




Interesting note SKC and thanks.
I wonder how our friends at Shaw Broking would react with their recommendation as BUY and price target - OMG.
I however pay lesser notice to the free newsletters from any firm because in a way that is to motivate the free readers in BUY mood when they say their real paid clients to be in SELL mode.
Here u go with the report published today and EHE also clarified the audit on their farm is a routine one.


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## McLovin (8 June 2016)

Ves said:


> I don't know about you guys,  but 1 in 14 claims,  whilst being less than 1 in 8, seems to be fairly high for so called experts.




It seems pretty bizarre to me to talk up the fact that 7% of your assessments are wrong when responding to whether or not you will be audited for over-assessing. It reminds me of a story about an Asian airline in the 1990s that used to boast in its inflight magazine that twice yearly fumigation of their aircraft kept the number of roaches on board below the industry average.

Thanks for the link to the blog skc.


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## McLovin (13 September 2016)

There's some corporate governance issues with these guys that seem to be getting worse. First, the founder resigns and sells all his shares that day. The rumour circulating was that they were collateral for a loan to the founder and the banks had been pushing him to sell. Now there is the interesting case of the apartments being sold at massively reduced prices to the CFO and now to director of a business it purchased last year.



> As revealed by our esteemed colleague Matthew Cranston, Estia Health's new chief financial officer Steven Boggiano bought two three-bedroom Gold Coast apartments from his employer for $375,000 and $384,000 respectively, three months after Estia had paid $625,000 and $640,000 for them as part of its acquisition of aged-care operator Nobel Life. Estia offered 10 apartments at these prices to both its own executives and the broader market.
> 
> Boggiano clearly has an eye for a bargain – not the worst quality to find in a CFO. And we're not suggesting any wrongdoing on his part. The sales agent, Colliers, says the units were sold at "fair market value", yet Ray White has more three-bedders in the same Victoria Towers high-rise "from $625,000". They'll even throw in a car space! So why would Estia offload them, whether to its CFO or to Krusty the Clown, at a 40 per cent discount?




Read more: http://www.afr.com/brand/rear-windo...er-of-southport-20160908-grbvqq#ixzz4K5iRLrqZ 


> Troubled aged care company Estia Health sold a Gold Coast apartment at a 25 per cent discount to the director of a company which managed an aged care facility Estia purchased.
> 
> Estia Health, which operates about 5700 aged care places across Australia, has been buying aged care operators around the country.
> 
> ...






Read more: http://www.afr.com/real-estate/esti...-it-bought-from-20160912-gre9hl#ixzz4K5iqclvL 


Smoke. Fire. Etc.


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## Ves (13 September 2016)

McLovin said:


> Smoke. Fire. Etc.



Indeed,  and the other big elephant in the room, namely the Federal Government,  hasn't even started to stamp it's feet yet.

As many others have said on various forums / media pages,  why would the government continue to allow companies like Estia the ability to earn well in excess of their cost of capital when most of their revenue is subsidised,  and if reports are correct,  allegedly over-inflated by inaccurate claims?

And... then there's the RAD funding risks.

You'd have to be brave or oblivious to hold this stock.


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## skc (13 September 2016)

McLovin said:


> There's some corporate governance issues with these guys that seem to be getting worse. First, the founder resigns and sells all his shares that day. The rumour circulating was that they were collateral for a loan to the founder and the banks had been pushing him to sell. Now there is the interesting case of the apartments being sold at massively reduced prices to the CFO and now to director of a business it purchased last year.




Remember this is the same CFO who somehow managed to miss his own profit guidance issued mere 7 weeks before year end. Their business is really quite predictable... unless there's a massive swing in occupancy or costs, one shouldn't expect massive discrepancies that close to the reporting date.

3 weeks after the guidance was issued, Quadrant Private Equity sold their holdings at $5.56.

Smoke. Fire. Etc.


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## McLovin (13 September 2016)

skc said:


> Remember this is the same CFO who somehow managed to miss his own profit guidance issued mere 7 weeks before year end. Their business is really quite predictable... unless there's a massive swing in occupancy or costs, one shouldn't expect massive discrepancies that close to the reporting date.




Wasn't it the old CFO who stuck with that guidance? I agree about the business. Input prices are largely known, and considering how much revenue is derived from the government it's very hard to make a case that they got blind-sided. Then again, they've gone from 10,000 beds growth by acquisition to organic growth almost overnight. One thing about these rollup businesses is they seem to attract people who'll try their hand at anything to make a buck. I guess that's why they sit well with PE.






How does this business fund itself now that the easy access to RAD funding is gone and they intend to grow organically. Is that even feasible? And what happens if property prices soften and RAD's start going backwards?

I might have to do a bit of work on EHE.


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## McLovin (5 October 2016)

Trading halt pending announcement of first quarter trading. I'm sure it'll be positive news.


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## skc (5 October 2016)

McLovin said:


> Wasn't it the old CFO who stuck with that guidance?




Never responded to this... yes you are quite correct. Not sure if that's good or bad though.



McLovin said:


> Trading halt pending announcement of first quarter trading. I'm sure it'll be positive news.




This is somewhat surprising. The change in government funding hasn't actually started yet. May be they have had to stop charging residents random make-up fees straight away which they have built into their guidance? Or may be the additional fees being charged have turned away residents? 

This can turn quite ugly (it's quite ugly already) even more quickly given the company has balance sheet pressures. If they raise capital now it'd be at some massive discount. 

On a positive note... a profit downgrade 5 days after the quarter ended means they must have pretty good business systems!


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## McLovin (5 October 2016)

skc said:


> This can turn quite ugly (it's quite ugly already) even more quickly given the company has balance sheet pressures. If they raise capital now it'd be at some massive discount.




They made their final payment to the Kennedys last Friday I think. That payment + an earnings downgrade + the dividend that has been declared will almost certainly force their hand at a cap raise which might be announced with a downgrade.

They had a $330m debt facility, which was drawn to $253m at June 30 with $29m in cash. They've made a $41m payment to the Kennedys, and have a $27m dividend due. Leaving ~$38m, with a possible downgrade. Not much wriggle room.


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## skc (5 October 2016)

McLovin said:


> They made their final payment to the Kennedys last Friday I think. That payment + an earnings downgrade + the dividend that has been declared will almost certainly force their hand at a cap raise which might be announced with a downgrade.
> 
> They had a $330m debt facility, which was drawn to $253m at June 30 with $29m in cash. They've made a $41m payment to the Kennedys, and have a $27m dividend due. Leaving ~$38m, with a possible downgrade. Not much wriggle room.




There's an AFR article on the exact issue... they also need some cash for some RAD headroom. So if RAD suffered some net outflow it's capital raising time. 

Stock borrow on REG and JHC pretty much used up....


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## ukulele (6 October 2016)

So Estia came out of a trading halt with downgrades, what a surprise. 

I have an experience with their management style.
My partner worked as a nurse at a private facility in Victoria for some time. Estia bought it from the couple who ran it and it went all downhill from there. Estia's management severely cut hours for both PCAs and nurses. From a short sighted management point of view it's great you instantly cut wage costs. What happened over the next few weeks and months? Plenty of staff calling in sick last minute, which means they have to get agency staff at higher rates. Staff also had stress leave all the time, more agency nurses. Not to mention level of care dropped significantly. My partner was bullied badly by management as she was on a 457 visa. When she got permanent residency she left to a much better job, so I kind of thank Estia for pushing her to finally leave to better pastures. 

Their debt funded growth via acquisitions also meant that whenever private operators got the knock on the door; they inflated their price. Classic mismanagement. Fair enough if you want to grow, but you have to strike a balance between acquisition growth and organic growth. 

Needless to say, I am not surprised at what they are going through at the moment. As a business there is money to be made in the sector; I hope the new management can make a go of it.


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## McLovin (12 December 2016)

skc said:


> There's an AFR article on the exact issue... they also need some cash for some RAD headroom. So if RAD suffered some net outflow it's capital raising time.




It's time. 


> Macquarie's equities desk is in the market with Estia Health's $137 million rights issue, seeking commitments from the company's institutional shareholders by 4.30pm on Monday.
> 
> Macquarie launched the one-for-three non-renounceable entitlement offer on Monday morning, offering existing shareholders new stock at $2.10 a share.
> 
> The offer was priced at a 21.6 per cent discount to the last close and a 17.2 per cent discount to the theoretical ex-rights price of $2.54.






http://www.afr.com/street-talk/terms-out-for-estia-health-raising-20161211-gt8vka#ixzz4SZvPSUDR 
Follow us: @FinancialReview on Twitter | financialreview on Facebook


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## peter2 (17 December 2018)

_A cautionary note first_: I won't be trading this due to my dislike of regulatory risk in this sector. 

The daily chart shows a promising reversal opportunity with an acceptable RR.


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## Ann (26 February 2019)

*Estia lifts profit 4.1% but cuts guidance*
_
Residential aged care provider Estia has lifted its first half profit 4.1 per cent to $21.1 million but has downgraded its full-year guidance in the shadow of the royal commission into the sector.

Estia's revenue for the six months to December 31 was up 6.6 per cent to $289.7 million, while total asset value - including property and equipment - edged higher to $1.86 billion.

The company will pay a fully franked interim dividend of 8.0 cents per share, unchanged from a year ago. More...._


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## Ann (23 March 2019)

EHE is on the run! The weekly Twiggs Money Flow is into positive territory and the Negative Volume Index is rising like it has seen something it fancies!  
It is now ex div and has risen above its long term falling overhead from November 2015. It needs to close the gap at $3.05.


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## Trav. (23 January 2020)

I took a position in EHE today as I like that the SP has recovered well in the last couple of months and has just about closed the gap from early Decemeber 2019.

up 2% yesterday and closed @ $2.60, today it is down 1.54% at time of posting but buyers are outweighting sellers, good momentum and looking for it to continue up.


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## Trav. (31 January 2020)

EHE failed to fill the gap in the above post and has fallen ~ 5% since the attempt.

No news so still holding and a little happier today as it held $2.47. Volume is increasing and hopefully a few holders have been shaken out and we will see another rise next week. But honestly I have no idea where it will go.


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## barney (7 February 2020)

Trav. said:


> EHE failed to fill the gap in the above post and has fallen ~ 5% since the attempt. No news so still holding and a little happier today as it held $2.47. Volume is increasing and hopefully a few holders have been shaken out and we will see another rise next week. But honestly I have no idea where it will go.




Testing and nudging through the recent lows today ….. not ideal


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## Trav. (7 February 2020)

I was watching this all day today and should have bailed but entered again......but keep that on the down low 

Currently down 4.1%  but definitely would have liked it to hold $2.37......can I see a double bottom on the chart


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## Dona Ferentes (10 March 2020)

corona virus ... ouch


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## Miner (20 August 2020)

Dona Ferentes said:


> corona virus ... ouch
> 
> View attachment 101179



With Victoria, Corona and serious down fall on the performance, the price is now laterally drifting. But super fund invested on it - why ???


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## TechnoCap (24 April 2021)

next stop $2.86-2.91 - imo


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## Dona Ferentes (25 December 2022)

TechnoCap said:


> next stop $2.86-2.91 - imo



All quiet on EHE.

_One analyst takes the view_:


> If you’re an efficient operator in the aged care space there are a lot of opportunities from an M & A perspective to acquire good assets at very attractive prices and at the same time we’ve seen quite a few large takeovers of aged care operating groups and we believe Estia itself is the target of potential acquisitions.






> So, we think the intrinsic value is over $3 and currently the risk/reward looks to be very attractive.



If the Estia Health share price were to rise to $3 after a takeover offer, that would represent a potential rise of around 50%.

Estia Health recently made its own acquisition, buying four residential aged care homes from Premier Health Care Group for $62 million, excluding stamp duty and transaction costs,rtf.

In1Q of FY23, its ‘spot occupancy’ on its mature home portfolio of 6,163 places, excluding the Burton expansion, was 92.3% at 31 October 2022. Average occupancy for the quarter was 91.7% compared to 90.6% in the second half of FY22.

The impact of COVID-19 has “continued to decline” during the FY23 first quarter. Total estimated incremental costs associated with prevention and response were $8.9 million for the quarter, compared to $13.4 million in the prior quarter.

It’s expecting to see the industry benefit from higher occupancy as the impact of COVID-19 lessens and a reduction in new supply intersects with the ageing population. The number of people over 85 is projected to increase by 60% in the next decade.

_..not sure if it's worth an entry in the tipping comp; but, if so, here's my commentary _


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