Regal lifts Estia stake in likely consolidation Matthew Cranston...

Regal lifts Estia stake in likely consolidation
Matthew Cranston
   Regal Funds Management has bought more stock in troubled aged care provider Estia Health with the expectation the company will be the target of consolidation in the sector and no longer be a listed company within 12 months.

   Last week Regal bought into the company, which owns 69 facilities around Australia, building a stake of more than 8 per cent at prices ranging from $3.15 to $5.75. On Monday, following a collapse in Estia’s share price, the fund manager bought in again at prices below $2.50.

   ‘‘We think the share price has been oversold,’’ Regal’s chief investment officer Philip King told The Australian Financial Review.

   ‘‘We think there will be a lot of consolidation in the sector and we think Estia will be the prime target,’’ Mr King said.

   Estia has been hit hardest out of the aged care operators after missing profit guidance when it reported its financial results last Monday.

   The founder of Estia Health, Peter Arvanitis, also resigned on Wednesday and had his entire stake in the company sold.

   There have been concerns raised about Estia’s growth strategy and financials.

   On Monday, the three listed aged care operators were all downgraded by analysts following news that the Department of Health had made a clarification over what fees the operators were allowed to charge their residents.

   The operators had been charging fees to try to mitigate funding cuts from the federal Budget. Analysts from CLSA, Bank of America Merrill Lynch and Morgan Stanley have reduced their forecast earnings for such operators and price targets have been reduced.

   When asked whether he thought Estia would still be a listed company in 12 months Regal’s Mr King said ‘‘probably not’’ and indicated that he thought there would be ‘‘consolidation’’.

   ‘‘We have had conversations with a non-listed operator about consolidation in the sector.’’

   He said there would also be a lot of benefits if operators such as Regis Healthcare and Japara Healthcare came together with Estia including overhead costs.

   The company has lost more than 60 per cent of its market value this year. It is the worst performing stock on the ASX 200 – and hedge funds are still shorting it.

Regal’s Philip King is positive about the aged care sector. PHOTO: DOMINO POSTIGLIONE