The Estia Health Ltd (ASX: EHE) share price has plunged more than 15% in early trading after the aged care operator reported its full year results.
At face value, the results look fairly decent..
- Revenues up 50% to $446.5 million compared to the 2015 financial year (FY15)
- Earnings before interest, tax, depreciation and amortisation (EBITDA) up 31% to $92.7 million
- Net profit after tax up 16% to $51.8 million
- Earnings per share (EPS) up 16% to 28.3 cents
- Net operating cash flow up 25% to $79 million
- Final dividend of 12.8 cents (fully franked) with total year dividend of 25.6 cents.
On that basis, at the current share price of $4.18, the shares are trading on a P/E ratio of ~14.8x and paying a dividend yield of 5.9% – fully franked.
That doesn't appear expensive for a company operating in the aged-care sector with gale-force tailwinds in the shape of an ageing population and a growing need for aged care services and accommodation.
However, Estia missed it EBITDA guidance provided in February and the outlook doesn't appear all that great. CEO Paul Gregersen said the company performance will be impacted by the government's cuts to the Aged Care Funding instrument (ACFI) and consumer preference for accommodation payments.
What next for Estia Health?
Estia says it still expects EBITDA for FY17 to be at least 13% ahead of this year's $92.7 million, suggesting EBITDA of ~$105 million. But given the company missed this year's forecast doesn't exactly bestow confidence in management's ability to forecast earnings 10 months ahead. Growth of 13% probably wasn't what the market wanted either.
Aged-care providers Regis Healthcare Ltd (ASX: REG) and Japara Healthcare Ltd (ASX: JHC) will also be buffeted by the government cuts. Regis's share price was up, while Japara's share price was down just over 3% to $2.31.
Foolish takeaway
Given the funding cuts and reliance on government for the majority of their revenues puts the aged-care operators in a risky position. As such, Foolish investors might want to avoid them for now.
