Aged care operator Estia Health Ltd (ASX: EHE) has seen its share price sink more than 25% from the IPO offer price of $5.75.
Needless to say, there are going to be some pretty angry fund managers out there blaming the seller, Quadrant Private Equity. And it will no doubt bring back bad memories of the private equity float of department store retailer Myer Holdings Ltd (ASX: MYR). Myer has yet to see its share price rise above its IPO price of $4.10 – and shares are currently trading at just $1.36.
But getting back to Estia, Quantrant no doubt wanted to capitalise on the success of this year’s previous aged care floats Japara Healthcare Ltd (ASX: JHC) and Regis Healthcare Ltd (ASX: REG). The private equity group only bought Estia in June 2013, merging it with South Australia’s Padman Health Care and Queensland and NSW-based Cook Care in October 2013.
According to the prospectus, Estia shares were offered at 21 times 2015 financial year earnings, with an expected 4.8% dividend yield in 2015. By comparison, Japara was offered on a 22.8 times 2015 earnings forecast and Regis on 19 times earnings.
But analysts have raised serious concerns over the ability of Estia to meet its forecasts. Investment banker and private investor David Kingston has noted that Estia has forecast a pro-forma net profit of $42.6 million in 2015-16, compared to $48 million for the market leader Regis. That’s despite Regis having approximately 30% more beds and 30% higher revenue. If Estia can’t meet its prospectus forecast, it will cast a shadow over future private equity offerings.
And Estia certainly appears optimistic, forecasting a 37% jump in earnings before interest and tax (EBIT) to $60.6 million, compared to $38.4 million in the 2014 financial year.
We’ll have to wait and see whether the aged care facility operator can meet those targets, but Estia may well rank as one of the most disappointing IPOs of 2014.