It is nine days since 5 September when the market bailed out of the three listed aged care operators.
Everybody hoped for a surge of buyers re-entering the market, acknowledging an over-reaction to the panicked realisation that perhaps the basic ‘care business’ was shaky, being built on Government funding.
It didn’t happen. Instead we had a ‘dead cat bounce’, where the share prices bounced a little but nothing to give confidence.
Since 5 September Japara has come back 4%, Regis 8% and Estia15%. Before you think that is not so bad, be aware that each of these stocks historically peaked on one day last year – 23 November (10 months ago). When they all bottomed on the 5th, Japara had fallen 49%, Regis 39% and Estia 64%.
And as we discussed last week, the flow on impact is that all investors in the care accommodation sector have pulled back, and this is hitting all of the listed companies, bar one.
In the ten trading days of this month, Eureka fell 9%, Gateway fell 9%, Aveo fell 6% and Lifestyle Communities fell 4%. Ingenia fell 2% which is negligible and reflects its substantial and diversified cash income.
Professional investors are vital to the sector for confidence and attracting capital to build more aged care homes and villages. The last month has spooked them as they realise that Government funding is not stable and its rules are erratic.
Strangely the best hope for the private sector is emerging in the Not For Profit operators, and their peak body ACSA in particular. Its new CEO, Pat Sparrow, is by far the most experienced and knowledgeable policy executive in the sector and is respected by the Minster and bureaucrats. 30% of her members are losing money every day and a further 20% are just covering costs. Old facilities are at the end of their working lives but stable, profitable revenue is required before new capital will be committed. She has pressure to get certainty in government funding – and more access to introduce ‘user pays’ income.
But she is six weeks into the job. Meanwhile professional investors will be looking for reasons on why they should come back, especially with the comments of Minister Ley at the ACSA conference last week that the ACFI ‘savings’ must be delivered – meaning cuts in operator revenue. They may be waiting a while.
