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Aveo Group (ASX: AOG) upgrades its FY 2018 earnings guidance

Aveo Group (ASX: AOG), the owner, operator and manager of retirement communities around the country today upgraded its FY 2018 earnings guidance.

Here is a summary of the announcement:

  • Underlying earnings per share (EPS) are expected to increase from the previous guidance of 20.4 cents per security to 21.6 cps.
  • The earnings upgrade is driven by higher than expected development profits at the Group’s retirement community development in Newstead, Brisbane.
  • Earnings per share growth is now expected to be 14% higher than the reported FY 17 EPS of 18.9 cps.
  • The estimated FY 18 distribution will be 9 cents per stapled security, a 3.7% yield on the current share price.
  • Aveo expects to have 565 new units on its Balance Sheet at the end of June 2018 and it will slow down the delivery of new units in FY 19 due to concerns over the state of the housing market.

Despite the earnings upgrade, Aveo shares were down marginally at the time of writing.

Negative publicity

While shareholders will be pleased with the earnings upgrade, they won’t be happy with the company’s share price performance over the last year.

Aveo’s share price has dropped by 20% over the last year primarily due to negative publicity following Fairfax media investigations of its treatment of elderly residents. That negative publicity has persisted in recent weeks as the group’s national quality manager resigned after being identified as Brisbane’s notorious ‘poo jogger’.

Foolish Takeaway

Aveo has a long way to go in restoring public trust but if it can, that could create some interesting opportunities. The retirement village operator is now trading at a 28% discount to its book value with a price to book ratio of 0.72.

I think an ageing population will boost Aveo in the long run and shareholders might be rewarded for their patience.

Even though Aveo has upgraded its earnings guidance, it’s not top of my buy list. Our team of experts have identified these companies as the best shares to buy right now.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can find Kevin on Twitter @KevinGandiya.

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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