There is no doubt that Regis has benefited from a major...

There is no doubt that Regis has benefited from a major re-rating from its low of 1.46 $ in March 2023 to 6.70 $ now.
However, it reflects a major change in the dynamics of this industry.

This industry was a really bad one where return on investment were low and explained why there was a limited supply growth.
2/3 of the industry was estimated to be loss making in FY 22.
A fund manager indicated in Sept 24 that supply had increased by less than 1 % during the past 15 months (at that time).
Clearly lower than demand increase.

A new legislation has modified the potential returns for this industry.
Major elements :
- operators will retain 2 % per year of the RAD* for new residents from July 1, 2025 (up to a maximum of 10 %),
- the cap on RAD has increased from 550,000 $ to 750,000 $ from 1/1/25,
- there will able a bi-annual indexation for the daily accommodation payment (DAP), paid by residents.

My understanding is that it improves the potential profitability of the industry.
But it will remain a tough industry (ex. cost of construction is estimated to have increased by 40 % in a few years).
It is the best possible scenario for REG as it improves the profit of their existing facilities, but may continue to limit the growth of new facilities.

Based on all these elements, the earning growth potential look significant due to :
- expected revenue increase from new facilities and probable more M&A,
- expected margin increase.
In particular from the ability to retain 2 % of RAD from July 1, 2025 (some estimate that this element alone could increase EBIT by 55 % vs FY 24).

Given this profile, interesting to look at today's valuation : free cash flow** yield 2025 of 5 % based on H1 25 results annualised (using only maintenance Capex).
This free cash flow could increase significantly from FY 26, as cash flow from operation will probably benefit from the expected increase for EPS (+ 23 % according to consensus) while maintenance Capex and lease will probably increase in line with revenues (+ 8 %e for FY 26 according to the consensus).


* refundable accommodation deposit (main way for operators to finance their business).
** I use my own calculation for the cash flow from operation, as the cash flow from operation disclosed by the company includes net inflows from RAD and ILU/ILA