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Why the Regis Healthcare share price fell despite meeting profit guidance

The Regis Healthcare Ltd  (ASX: REG) closed 1.39% lower at $2.84 per share on Thursday after the healthcare company reported a normalised net profit of $47.2 million yesterday.

What did Regis announce yesterday?

For the year ended 30 June 2019 (FY19), Regis saw revenue climb 9% higher on the prior corresponding period (pcp) to $647.1 million.

Despite the solid headline revenue figures, Regis’ earnings before interest, tax, depreciation and amortisation (EBITDA) fell 5% lower than FY18 on a normalised basis while normalised net profit after tax (NPAT) came in 17% lower on pcp at $47.2 million.

Management cited facilities ramp-up from its growth initiatives and lower occupancy across its steady-state facilities as drags on its EBITDA figures, while staffing expenses also impacted profitability.

However, all eyes were on Regis’ NPAT figures which came in at the low end of the healthcare company’s full-year guidance range of $47 million to $51 million.

It wasn’t all bad for Regis shareholders though, with net Refundable Accommodation Deposits (RAD) cash flow of $142.9 million more than doubling the cash flow seen in FY18.

Regis said its net operating cash flow of $220.1 million was largely driven by its normalised EBITDA figure as well as a modest improvement in its steady-state average income RADs.

The Aussie healthcare group remains well-diversified in terms of earnings, with 57% of incoming resident payment from RAD only, 37% from DAP only and 6% from a combination of the two.

Foolish takeaway

While the headline figures for Regis appear soft at first glance, both underlying EBITDA and underlying NPAT landed within the company’s guidance range for FY19.

Regis remains one of the largest providers of residential aged care services in Australia with 63 facilities across the company, and remains well-placed to capitalise on the country’s ageing population demographics.

While the ASX aged care stocks haven’t enjoyed the best of success in recent years, with the Regis share price down 18% in the last 12 months, a diversified asset and earnings base means the company doesn’t look in too bad shape.

While I’m not personally looking to buy Regis shares, they could be a bargain buy for the speculative Fool seeking Aged Care exposure in the latter part of the year.

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Motley Fool contributor Kenneth Hall 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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