Why the Japara Healthcare Ltd share price has soared to a 52-week high

Credit: Pictures of Money

What: Aged care and retirement accommodation operator Japara Healthcare Ltd (ASX: JHC) jumped 5% on Wednesday to an all-time closing high of $3.35, giving the company a market capitalisation of $850 million.

So What: The rally in Japara’s share price corresponded with the group’s annual general meeting (AGM) at which management reaffirmed financial year (FY) 2016 guidance for earnings to exceed FY 2015 thanks to increases in the average aged care funding instrument (ACFI) rate per resident, brownfield and greenfield developments which provided an increase in operational bed days and higher revenue from refurbishments, a full year contribution from the recent Whelan Care acquisition and further take up of Japara’s Signature Services.

Adding to the already stated drivers of increased FY 2016 earnings is the expected settlement of the Profke acquisition which management has forecast will contribute a further  $3.5 million to $4 million in operating earnings before interest, tax, depreciation and amortisation.

Now What: Japara is successfully undertaking bolt-on acquisitions in what is a highly fragmented industry. Together with the favourable industry dynamics of growing demand which is estimated to require an addition 82,000 beds within the next decade, it seems the outlook for Japara is positive.

Japara isn’t the only aged care play investors can make, however, with a number of investment options within this sector thanks to some recent listings – Regis Healthcare Ltd (ASX: REG), Estia Health Ltd (ASX: EHE) and Summerset Group Holdings Ltd (ASX: SNZ) are three more stocks investors should take a look at if they are considering adding portfolio exposure to this growing sector.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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