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Estia Health Ltd (ASX:EHE) shares fall on disappointing full-year results

The Estia Health Ltd (ASX: EHE) share price has tumbled lower on Thursday following the release of its full-year results.

In early afternoon trade the aged care operator’s shares are down almost 1% to $3.14.

Here is a summary of FY 2018 compared to the prior corresponding period:

  • Operating revenue increased 4.3% to $547.1 million.
  • EBITDA up 4.1% to $90.1 million.
  • Net profit after tax rose 1.1% to $41.2 million, equating to earnings per share of 15.7 cents.
  • Average occupancy improved to 94.2% from 93.5%.
  • Net RAD receipts of $62.8 million.
  • Net bank debt reduced to $63.8 million.
  • Fully franked final dividend of 8 cents per share declared.
  • Outlook: Mid-single digit percentage increase in EBITDA on its existing portfolio of homes in FY 2019.

I thought this was a disappointing performance from Estia Health and I can’t say I’m overly surprised to see its shares drift lower despite already being down significantly year-to-date.

Although EBITDA grew 4.1% over the 12 months, it has slowed down from the first-half when it grew 5.6% on the prior corresponding period. I estimate that second-half EBITDA grew just 2.5% despite improvements in its occupancy levels.

Management has blamed staff cost pressures on its EBITDA margin weakness. Thankfully this was offset slightly by achieving further improvements in non-wage costs.

CEO Norah Barlow believes things could improve in the future. Stating that: “We are confident about the future of the company and the fundamentals of the industry in which we operate. The past 12 to 18 months has seen us shift from stabilising the business to optimising its financial and operating performance and ensuring Estia is in a position to capture the tremendous growth opportunities that exist, now and in the future.”

Should you invest?

While I do believe that Australia’s ageing population should put Estia and rivals Japara Healthcare Ltd (ASX: JHC) and Regis Healthcare Ltd (ASX: REG) in a position to profit greatly in the future, it may be a few years before these benefits are reflected in their earnings growth.

Because of this, I see more value in the shares of growing home care provider Zenitas Healthcare Ltd (ASX: ZNT).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Zenitas Healthcare Ltd. 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.