My 2 cents as I have worked on the finance side of the aged care industry for 5 years.
I have always stayed away from EHE, JHC and REG despite the aging population simply because 70% of the industry's revenue come from the government ACFI which is diminishing year on year. I fundamentally believe it is wrong that these 3 aged care providers become public listed in the first place.
The way I see the aged care model evolves in the future, as the government budget shrinks, providers have to squeeze more fees from residents by providing more services. Therefore financially more capable residents will be targeted, and with such change in the resident profile the facilities will need to be upgraded to match the game. The prevalent model of cheap facility with cheap RAD/Bond getting top ACFI ($190 - $200+ per bed per day) will have declining profitability noting that government and not-for-profit owned facilities should still be on this model as they are mission based rather than profit driven.
I had the privilege to have worked with a top 10 aged care provider for 3 years. They are owned privately. Their model is building high end facilities in the country's most affluent suburbs charging $600k - $1.5m RAD/Bond per bed. Walking into their facilities is like being welcomed into a 5 star hotel embracing another chapter of one's life. Their average ACFI per bed per day is moderate at circa $175 but fees from residents for the extra service provided are increasing steadily. The overall profitability is lower than some of the most squalid ones I have seen but in the long run I think the scale will tip towards them.
Aged Care has always been an efficiency game to get the top dollar on the ACFI, but while this continues the profit driven providers will have to diversify their revenue sources to counter the ACFI declines.
JHC Price at posting:
$1.44 Sentiment: None Disclosure: Not Held
