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Why the Regis Healthcare share price is crashing lower today

One of the worst performers on the All Ordinaries on Friday has been the Regis Healthcare Ltd (ASX: REG) share price.

In morning trade the aged care provider’s shares have fallen over 7.5% to $3.12 following the release of its half year results.

What happened in the first half?

In the first half of FY 2019 Regis Healthcare posted an 8% increase in normalised revenue to $318.2 million and a 19% decline in normalised net profit after tax to $24.7 million.

This was largely in line with its expectations which were outlined at its annual general meeting in October and puts it in position to achieve the low end of its FY 2019 normalised net profit after tax guidance range of $47 million to $51 million.

This guidance range implies a year on year decline of between 10.4% and 17.4% on its normalised net profit after tax of $56.9 million in FY 2018.

However, Regis’ EBITDA looks to have fallen short of expectations. First half normalised EBITDA came in at $56.7 million, down 7% on the prior corresponding period.

And with management expecting its second half EBITDA to be similar, it seems unlikely that it will achieve its guidance of flat full-year normalised EBITDA.

Nevertheless, the company’s managing director and CEO, Mr Ross Johnston, appeared to be pleased with the result and its net Refundable Accommodation Deposits (RAD) receipts during the half.

He said: “The highlight of this result was the net RAD receipts of $72 million for the six month period which exceeded the full year FY18 result of $62.6m. This result was underpinned by the solid performance from the Facilities ramping up. The average incoming RAD levels showed a modest increase in the steady state business.”

What else was announced?

As well as the disappointing result, the company’s shares may have come under pressure today after the company announced that its managing director and CEO plans to step down after almost 11 years in the role.

Mr Johnston will continue to lead the company’s experienced leadership team until September. In the meantime, the board has a process underway to select a new CEO to succeed him.

Should you buy the dip?

Whilst I think the aged care sector is an attractive area of the market due to the long-term tailwind brought about by Australia’s ageing population, I plan to stay clear of Regis, Estia Health Ltd (ASX: EHE), and Japara Healthcare Ltd (ASX: JHC) until after the aged care Royal Commission has concluded and the recommendations are made. Until then I just don’t see a compelling enough risk/reward to warrant an investment.

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Motley Fool contributor James Mickleboro has no position in any of the stocks 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.

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