Aged care facilities operator Japara Healthcare Ltd (ASX: JHC) is bucking the market downtrend with the stock jumping to a two-week high during lunch time trade after management announced a $79.5 million acquisition.
The stock advanced 2.2% to $2.85 even as the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) shed 0.4% as investors cheered Japara's move to buy four facilities from Profke, which will add 587 beds to Japara's portfolio.
The acquisition will prompt analysts to upgrade their forecasts on Japara as the deal is expected to be earnings accretive in the current financial year.
Profke will give Japara a strategic presence in Queensland and a platform to build new facilities in the region as Profke owns a 230-bed facility in Noosa and a 130-bed facility in Gympie.
Profke also owns a 147-bed centre in Coffs Harbour and an 80-bed nursing home in South West Rocks in New South Wales.
The newly acquired assets generated revenue of $42.5 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $8.7 million in the 12 months to end June 2015, and Japara anticipates that the acquisition will add $3.5 million to $4 million to group EBITDA for the current financial year.
In contrast, Japara posted an EBITDA of $50.6 million in 2014-15 and the price paid for Profke equates to $135,000 per bed.
Morgans noted that this is roughly in line with what Japara paid for Whelan in South Australia and is cheaper than the $160,000 per bed paid by Estia Health Ltd (ASX: EHE) for capital city acquisitions.
However, Japara's latest buy is unlikely to win over those who believe the stock is looking fully valued as it is trading on a 2015-16 consensus price-earnings multiple of 24x, even though this multiple will probably fall a little due to the Profke acquisition.
The premium might be justified if Japara can generate most of its growth from its organic business, although I don't see much value in the stock at its current level.
Post-acquisition Japara will own 43 residential care facilities with 3,976 beds and it is looking to add another 805 beds by 2018-19.
All aged care stocks have been aggressively undertaking acquisitions to bolster growth and this includes Pulse Health Limited (ASX:PGH).
The good news is there are good value stocks that do not need to make acquisitions to grow.
