Compared to the other listed aged care providers (EHE and REG) at least Japara still has a positive NTA. The other two are negative.
And cash flow from operations is quite good. From the latest half yearly, operating cash flows excluding RADs was 26m. Assuming no seasonality, that's 52m annualised - or 35% of the current market cap. They could earn back their entire market cap in three years if they stopped new development of capital works today.
Of course its different if coronavirus impacts their centres. Operating expenses are likely to be higher and operating revenues lower. But this is temporary. As long as they stay cash flow positive this year (or even just survive), the future years would be bright.
On management quality, the drop in profitability has been across the whole aged care sector since Liberal won the election. Not just Japara. The aged care sector gets a large proportion of its income from the government - not because they are inefficient but because they need to deliver quality care at a reasonable price to pensioners. I believe the Liberal government in their stubborn commitment to budget surplus did not increase funding to aged care by the amount they should have. As a result many aged care centres are operating at a loss (see AFR article a few days ago) and Japara has actually done well in maintaining their quality of care at a reasonable profit. The chairman was quite honest in his annual report last year that he expected profit to drop significantly this year. And that level of honesty is a rare quality in companies today.
I believe aged care is here to stay. Some old people can't live in their own homes by themselves. And you can't expect the thousands of people currently living in aged care to just go back to their families. Some don't have families to return to. Some families need to work so they can't stay home to look after their parents. Some have already sold their homes to capture the recent gains in the housing market.
The aged care Royal commission last year showed significant failings in some centres (Bupa operated especially). But many of them have not been forced to close. That just shows the level of demand aged care has in the society. And it is a demand that will continue to grow with the ageing population.
Stay safe and good luck
JHC Price at posting:
54.5¢ Sentiment: Hold Disclosure: Held
