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Japara Healthcare Ltd shares drop lower on weak half-year result

Last week the shares of Estia Health Ltd (ASX: EHE) and Regis Healthcare Ltd (ASX: REG) posted notably strong gains following the release of their respective half-year results.

Unfortunately, the Japara Healthcare Ltd (ASX: JHC) share price hasn’t been able to make it three from three. Its shares are down 2% to $1.98 at the time of writing following the release of its half-year result this morning.

For the six months ended December 31, Japara posted earnings before interest, tax, depreciation, and amortisation (EBITDA) of $24.3 million on revenues of $182.5 million. This was a 16.5% decline and 2.2% increase, respectively, on the prior corresponding period.

On the bottom line net profit after tax was down a disappointing 29.5% on the prior corresponding period to $10.3 million. This led to earnings per share of 3.9 cents and an interim partially franked dividend of 4 cents per share.

One of the reasons for the disappointing half was a decline in occupancy levels. Japara averaged just 92.3% during the half, compared with 94.4% a year earlier. Whilst this has now improved to 93.5%, it is still down meaningfully year-on-year. The cause for this was a severe influenza outbreak experienced in its community during the first-half of the financial year.

Earnings were also impacted by greenfield start-up costs at the newly opened Riverside Views home and redundancy costs associated with its roster optimisation program.

Outlook.

Management has reiterated its previous guidance and has forecast second-half EBITDA exceeding the first-half. Furthermore, in FY 2019 it expects to return to EBITDA growth thanks to occupancy levels returning to more normal levels, strong industry tailwinds, and its growth strategy.

Should you invest?

Whilst there is no denying that this is a disappointing half, I do think that a lot of it was outside management’s control.

Overall, I’m willing to overlook this weak result and continue to believe Japara is a great long-term investment option for investors due to Australia’s ageing population. But it is certainly a high risk investment and not suitable for all investors.

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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.