EHE - Estia Health

[skc]

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.

 

[Ves]

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.

 

[galumay]

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!

 

[Miner]

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.
xxx

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.

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.

 

[McLovin]

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.

 

[McLovin]

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.

Last year it snapped up a small business called Nobel Life, located within a high-rise development called Victoria Towers at Southport on the Gold Coast.

Part of that deal included the purchase of 10 apartments in the tower at prices ranging from $605,000 to $645,000.

The Australian Financial Review can reveal that Estia bought one of the apartments – number 3105 – for $645,000 and then sold it to Nobel Life director Ross Humphreys' company Sunpacific three months later for $485,000. An attempt to contact Mr Humphreys was made.

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


Smoke. Fire. Etc.

 

[Ves]

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.

 

[skc]

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.

 

[McLovin]

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.

 

[McLovin]

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

 

[skc]

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.

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!

 

[McLovin]

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.

 

[skc]

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....

 

[ukulele]

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.

 

[McLovin]

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
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[peter2]

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.

 

[Ann]

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....

 

[Ann]

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.

 

[Trav.]

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.

 

[Trav.]

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.