Should you buy Japara Healthcare Ltd? This top fund manager just did!


What: The largest ASX-listed investment company (LIC) Australian Foundation Investment Co. Ltd. (ASX: AFI) has this week provided the market with a notice of initial substantial holder in residential aged care provider Japara Healthcare Ltd (ASX: JHC).

So What: While Australian Foundation has owned shares in Japara for quite some time, the manager’s decision to up its stake in the group by over $9 million in the past few months is significant and could reasonably be viewed as an endorsement of both Japara’s strategy and the current value available.

Now What: As I noted here recently, Japara looks like an appealing way to gain exposure to the healthcare thematic.

According to a broker consensus forecast provided by CommSec, Japara is expected to increase its earnings per share from 10.7 cents per share (cps) in financial year (FY) 2015 to 12.6 cps in FY 2016. In FY 2017, earnings are forecast to rise further to 17.2 cps.

With the share price trading at $2.90 this implies a FY 2017 price-to-earnings multiple of 16.9 times.

Meanwhile, the forecast dividend of 17.4 cps implies a FY 2017 fully franked yield of 6%.

Those metrics certainly look appealing, not just relative to the wider market but particularly considering the growth profile of Japara.

Australian Foundation’s move up Japara’s share register could prove a timely opportunity for investors to take a closer look at Japara too.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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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