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Aveo Group share price up 3% on its report

The Aveo Group share price has started the day up 3% after the market digested its report.

Aveo Group is one of Australia’s largest senior living providers.

Here are some of the highlights from the report for the half-year to 31 December 2017 compared to the prior corresponding period:

  • Total retirement income down 37% to $28.7 million
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) down 34% to $46.4 million
  • Underlying net profit after tax (NPAT) down 33% to $36.4 million
  • Funds from operations (FFO) per security down 39% to 8.8 cents
  • Operating cash flow down 61% to $59.2 million
  • No interim distribution as per last year
  • Statutory NPAT up 23% to $149.3 million

The statutory profit growth was delivered by the positive change in fair value of its properties and the gain from the sale of Gasworks. Pro-forma reported gearing reduces to 16.3% after the settlement of Gasworks parts one and two.

Aveo said that the underlying profit was impacted by reduced sale volumes as a result of the negative media commentary at the beginning of the period. The reduced sales volumes also resulted in a decrease of FFO compared to the prior corresponding period.

The company said that it has implemented a number of initiatives to better serve its ‘consumers’ and regain their trust.

Some of the initiatives include better pre-contract disclosure, improved contract terms, simpler contracts, retail discounts for residents, resident surveys and better risk management.

Aveo said that it has filed its defence in the class action, generally denying the lead applicant’s allegations. The number of residents who are part of the class action remains unclear. Aveo has obtained security for costs of $185,000 for the first stage of the action.

Aveo CEO, Geoff Grady, said “While we, and the industry as a whole, encountered a challenging period mid last year with significant media sentiment, an increasingly positive response from existing and new residents to the new contract initiatives we introduced has seen a strong recovery with sales momentum returning to more normalised levels by the end of last year.

“The package of new initiatives that we introduced last August – especially the money back guarantee and shortened buy-back period – have been implemented and very well received by residents and other stakeholders.”

Aveo reaffirmed its guidance for FY18 of earnings per share (EPS) of 20.4 cents per security and a retirement return on asset target in the range of 7.5% to 8%.

Foolish takeaway

Clearly Aveo is suffering from the reputational hit that it took last year. Aveo is making good noises about turning things around, which should serve residents and the business’ bottom line.

It might be a decent long-term buy today if it can return to normal operating and profit growth, but it will have to continue to do the right thing by its residents.

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Motley Fool contributor Tristan Harrison has no position in any of the 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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