Estia Health Limited (EHE)
HOLD

Out of bed

 21 Feb 2023
Sector: Health Care

1H23 RESULT

Need To Know

  • Returning to growth and underlying profitability ($40.7m EBITDA vs $4.7m in 1H22)
  • Average occupancy up to 91.9% (from 90.6%), 17th Feb occupancy at 92.9% (across mature homes)
  • Dividend reinstated – 3.7cps, share buyback to recommence in April 2023

The company has gotten back on its feet, with revenue up 9% to $359.2m, and underlying EBITDA of $40.7m. The NPAT result was impacted by the bed licence amortisation charge of $40.2m, acquisition related costs of $6.6m and net Covid-19 related costs of $2.0m, after receipt of grants in the period (statutory NPAT -$25.3m). Underlying NPATA of $9.6m allowed EHE to declare a dividend of 3.7cps, indicating its confidence in the outlook.

Occupancy returning to 91.9% average, with 17 February spot occupancy on mature portfolio at 92.9%. Outside of Victoria, the average was 94.6%. 

Annualised EBITDA per bed grew to $14,947 (ex-Covid-19 costs and grants), with the Q2 average of $17,829, indicating a solid exit run rate and return to solid profitability.

RAD inflows of $28.5m help underpin a solid balance sheet, with net debt of $59.7m at the end of the period.

Recent acquisitions of Mount Clear in Ballarat (VIC) and Premier Health care are adding 120 and 409 additional places respectively. Occupancy in premier health has increased 2.7% since the 1 December 2022 settlement. Mount Clear occupancy was at ~95% having recently completed a ramp-up. 

Outlook sees positive momentum across several indicators, with incremental funding from the introduction of the new AN-ACC replacing the ACFI funding model (~$10/day increase from 1 October) continuing to translate to better margins. Opportunities for growth are expected, with recent purchases contributing to upside. Drivers in aged care remain strong, however two major elements of the reform agenda remain (IHACPA), which significantly impact the outlook for the sector beyond FY23.

Investment View

The result demonstrates a clear return to growth for the company and momentum is turning positive. There are still several catalysts in the reform agenda however, which until more clarity is provided, leaves us a Hold on the stock. 

Figure 1: Estia occupancy levels remain well above sector averages

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Stock Overview

Share Price

Company Overview

Estia Health Limited is an Australia-based creator of residential aged care homes.

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