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Regis Healthcare Ltd jumps on strong earnings: Is this the start of something big?

Shares of Regis Healthcare Ltd (ASX: REG) surged 9.7% this morning after the recently-listed aged care provider smashed earnings expectations and lifted its full-year profit guidance.

So What: On a pro-forma basis, Regis Healthcare reported a $29.6 million half-year net profit after tax (NPAT), which represents 62% of the full-year prospectus target, allowing it to increase its full-year NPAT guidance by 5-10%. This was on the back of a 9.9% lift in revenues to $219.2 million, which was largely driven by a greater daily government subsidy per resident. This reflects a larger number of residents requiring high or acute levels of care.

The increase in revenue also helped the company to reduce its staff costs, which are a major expense in the aged care industry. Staff costs as a percentage of revenue fell to 60.5%, down from the 63.5% in the prior half and the 63.7% flagged in its prospectus.

Now What: Australia’s population is ageing and aged care providers such as Regis Healthcare, Estia Health Ltd (ASX: EHE) and Japara Healthcare Ltd (ASX: JHC) are well positioned to benefit. Regis Healthcare finished the reporting period with $72.9 million in cash and no debt, leaving it in an excellent position to execute its growth strategy.

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As of 2.11.2020

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

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