Estia share price lifts despite $50m loss

The residential aged care provider has reported its results for FY22. Here are the details.

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Key points

  • The Estia share price is in the green despite the company posting a net loss of $52.4m in FY22 compared to a net profit of $5.6m in FY21
  • However, the bad news is priced into the shares and the results gave some glimmer of hope for embattled shareholders
  • The company’s earnings may improve this year if COVID pressure eases as its occupancy rates remain high

The Estia Health Ltd (ASX: EHE) share price shows why you can't only judge a company by its headline results.

Shares in the aged care provider are holding up well even after it turned in a net loss of $52.4 million for the financial year ending 30 June 2022.

The Estia share price is currently up 1% to $2.02, while the All Ordinaries (ASX: XAO) is down 0.6%.

Summary of Estia's FY22 results

  • Total revenue improved 2.2% to $680 million
  • Earnings before interest, tax, depreciation, and amortisation (EBITDA) Mature homes: $37.5m (FY21: $61.4m)
  • COVID-19 costs impact: $42.3 million of net unrecovered costs
  • Net loss after tax of $9.6 million before bed licence amortisation (NPATA)
  • Net loss after tax of $52.4 million after bed licence amortisation, compared to a profit of $5.6 million in FY21
  • No final dividend declared

What else happened?

The impact of COVID-19 on the sector is well documented. Some will say a lot of bad news is already reflected in the Estia share price, which is trading at the lower end of its 52-week trading range.

Further, there are signs of a silver lining to the company's FY22 results. One was the $50.4 million in extra COVID costs to cover the likes of testing, quarantine, and personal protective equipment.

As the pandemic eases, these costs should ease and flow back to its EBITDA line. If this thinking holds true, FY23 EBITDA could show an improvement.

Additionally, the average occupancy rate remains high and stable at 91.6%, which is up from a low of 90% in February this year.

What may also be pleasing investors is Estia's average incoming Refundable Accommodation Deposit (RAD), a standard room price set by the aged care home and paid by a refundable lump sum. This amount was $453,000, which exceeded the outgoing RAD by $47,000.

What Estia said about its FY22 results

Commenting on the results, Estia chief executive Sean Bilton said:

The commitment and loyalty of the aged care workforce has been exceptional during the last two years, notwithstanding the fact that rates of pay lag comparable sectors. The current Fair Work Commission work value case may provide a trigger for greater parity, making the sector more attractive to employees and facilitating the required growth and funding of the sector workforce.

The regulatory landscape is nearing a point where we should have a higher level of certainty for the first time in four years. The Group is well-placed to benefit from opportunities created by a more competitive and transparent sector

What's next?

Despite Bilton's positive commentary, the company painted a cautious outlook. It noted uncertainties remain, which may affect the financial performance of Estia.

The tighter regulatory requirements for the sector following the Aged Care Royal Commission also introduce another level of uncertainty.

Estia would only say that it will use capital in a disciplined way to take advantage of growth opportunities.

One has to wonder if mergers and acquisitions are part of the equation. After all, the turmoil in the sector has put the M&A spotlight on operators in this space.

Estia share price snapshot

The Estia share price has shed almost 10% over the past year, while the All Ordinaries has lost around 7%.

In contrast, its peer Regis Healthcare Ltd (ASX: REG) has gained 3.6% over the same period.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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