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Estia Health Ltd, Regis Healthcare & Japara shares crater on Royal Commission worries

Shares in aged care provider Estia Health Ltd (ASX: EHE) tanked 17% this afternoon after new prime minister Scott Morrison called for a Royal Commission into the practices of the aged care sector.

The sector includes several ‘for profit’ operators on the ASX such as Estia, Japara Healthcare Ltd (ASX: JHC) and Regis Healthcare Ltd (ASX: REG), with the latter two both also down 17% respectively.

Given the aftershocks being felt across the financial advice industry thanks to the ongoing Royal Commission into financial services it’s no surprise shareholders are taking an abandon ship approach to listed players in the aged care sector.

The problem with some ‘for profit’ professional services business such as those in aged care, child care, or higher education, is that standards of service and profit margins can be inversely correlated, with greater regulation a constant threat.

In response to today’s news Estia’s CEO Norah Barlow claimed Estia “welcomed scrutiny” and ‘looked forward” to working with the government on the terms of reference for any inquiry.

The sector looks to be in for a major public relations battle over the short term and the potential for damaging revelations to come out of a potential Royal Commission.

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Motley Fool writer Tom Richardson has no financial interest in any company 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 Scott Phillips.