Australia’s ageing population is one of the biggest tailwinds for a multitude of different businesses. It could cause the government a budget headache as more people enter retirement, but it could be a good opportunity for a number of companies.
Here are three examples of businesses that could experience good organic growth:
Gateway Lifestyle Group (ASX: GTY)
Gateway is one of Australia’s largest retirement village operators. I like it compared to its peers because it doesn’t charge entry or exit fees, which makes its business model more sustainable in my opinion.
I mainly like Gateway for its long-term rental revenue growth. In FY12 its long-term average weekly rent was $124 and in the first half of FY18 it was $146. Its long-term rental revenue increased by 10.1% to $25.1 million in the first half of FY18. It can increase its rent by the greater of CPI or 3% to 5% each year.
Ramsay Health Care Limited (ASX: RHC)
Ramsay is Australia’s largest private hospital operator, it also has major operations in the UK and France.
As more people enter their golden years, the more likely they are to need a hospital visit. I like that Ramsay continues to invest for future growth with hospital expansions and new builds.
Value investors may argue Ramsay’s share price could go even lower, but it’s a very high quality business which has grown well. Management are looking at expanding into another geographical area like North America or China, which would be another pillar for growth.
Japara Healthcare Ltd (ASX: JHC)
Japara is one of Australia’s largest aged care operators. As people reach around 75 to 80 there is a much higher chance that they’ll need to go into an aged care home.
The company has plans to grow its total number of beds by around 1,000 over the next few years but it also recently announced an acquisition of Riviera Health – an aged care provider which adds a further 500 bed licenses.
It has recurring revenue from its residents and hopefully will be able to grow its average revenue per resident over time.
I like all three shares, which is why I’m a shareholder in two of them. At the current prices I think all three would make good ultra-long-term buys, but perhaps as interest rates rise they will become even better value at some point over the next year or two.
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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET and Ramsay Health Care Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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 Scott Phillips.
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