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Estia Health Ltd shares jump 7% on solid profit result

It has been a positive day of trade for the Estia Health Ltd (ASX: EHE) share price on Thursday.

In afternoon trade the aged care provider’s shares are up 7% to $3.42 following the release of a positive half-year result.

Here are highlights from the release:

  • Operating revenue rose 3.3% on the prior corresponding period to $271.7 million.
  • Earnings before interest, tax, depreciation, and amortisation (EBITDA) rose 5.6% to $45.4 million.
  • Average occupancy flat at 94%.
  • Net RAD receipts of $33.6 million.
  • Diluted earnings per share of 7.8 cents.
  • Declared interim dividend of 7.8 cents per share fully franked.
  • Outlook: Reaffirmed full-year mid-single digit EBITDA growth guidance for FY 2018, subject to no material changes in market or regulatory conditions.

Management has pointed to its strong operating performance and prudent approach to cost management as being the key drivers of this solid first-half.

In addition to this, the expansion of its portfolio in strategically important locations played a role during this half and will continue to do so over the next 18 months.

During the half the company opened its newly developed 114-bed home at Twin Waters on the Sunshine Coast. This was done both on schedule and on budget.

Pleasingly, the portfolio will be given a further boost from the opening of its 72-bed Kogarah home in New South Wales next month, on schedule and on budget. Then by the end of FY 2019 a further 345 new beds will come online through developments at Blakehurst (NSW), Southport (QLD), and Sunshine Cove (QLD).

As well as expanding its portfolio, management has undertaken a significant refurbishment program. This program has brought the total number of refurbished homes to 16, with 1,631 beds eligible for the Higher Accommodation Supplement.

I think this puts Estia in a good position to grow its profits over the next fews, especially considering the growing demand for aged care services.

Should you invest?

My preference in the industry remains Japara Healthcare Ltd (ASX: JHC) ahead of both Estia Health and Regis Healthcare Ltd (ASX: REG).

While I have been impressed with Estia Health’s turnaround and believe it is well positioned to deliver strong earnings growth over the coming years, at present it is just too expensive for my liking.

At the current share price Estia Health is changing hands at around 22x trailing earnings and provides a fully franked 4.6% dividend. I think this is too much of a premium to pay at this point for a company forecasting mid-single digit EBITDA growth this year.

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Motley Fool contributor James Mickleboro 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.