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

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.

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.

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

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.

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'....

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.

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.

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.

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...

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

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.

Ves · 7 June 2016

McLovin said:
Sell-off today sparked by this...

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

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?

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?

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.

That move comes after years of rapid expansion, and with the federal government clamping down on non-compliant funding claims, after a sharp increase in the level of funding aged-care providers are receiving.

Estia has also attracted the attention of short-selling hedge funds, all questioning the sustainability of its aggressive roll-up acquisition strategy.

With a market capitalisation of $993m, Estia is headed by former Bupa executive Paul Gregersen.

Concerns have also been raised about the company’s practice of reclassifying residents of newly purchased facilities into higher care categories, which attracts extra government funding.

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.

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.

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.

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

Seems like a massive red flag to me.

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.

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.

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...

EHE - Estia Health

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futurenow

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orr

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Ves

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