Is the Japara Healthcare Ltd (ASX:JHC) share price a buy?

The Japara Healthcare Ltd (ASX: JHC) share price is at the lowest it has been in 2018. It’s worth considering if it is a buy today.

It’s one of the largest aged care providers in Australia and has pleasing tailwinds due to the ageing demographics of Australia.

The company recently acquired Riviera Health, which included four operating aged care facilities at Chatswood, Doonside, Brighton-Le-Sands and Wyong, a near completed replacement facility at Brighton-Le-Sands, 239 surplus bed licenses and other real estate assets.

Since the acquisition, Japara has implemented its operating standards in all the operating homes, as well reconfiguring the homes by converting multiple bed wards into single rooms.

Japara has also received full re-accreditation at the Wyong and Doonside homes after the Department of Health had previously sanctioned the previous owner. Japara met all 44 of the Australian Aged Care Quality Agency expected outcomes.

The Japara CEO, Me Andrew Sudholz was pleased with how quickly Japara received accreditation considering the short amount of time the company owned the new locations.

This purchase enables Japara to start a portfolio of ‘premium’ newly built aged care homes in Sydney.

Me Sudholz said that the acquisition for $39 million was exceptional value because Japara purchased four operating homes for little cost due to the expected cash receipts from the refundable accommodation deposits at the new Brighton-Le-Sands home, the value of the surplus licenses and the other real estate acquired.

The four Riviera Health operating homes are expected to provide an operating earnings before interest, tax depreciation and amortisation (EBITDA) uplift of between $3.5 million to $4 million.

Foolish takeaway

Japara is currently trading at around 17x FY17’s earnings. Japara is a tough one to judge because of how dependent it is on a supportive government. However, it does appear good value for how earnings will come online over the next three years.

Unconvinced about Japara? These top stocks are even more likely to deliver growth.

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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET. 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 Scott Phillips.

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