{"id":7239,"date":"2024-03-16T09:52:14","date_gmt":"2024-03-16T09:52:14","guid":{"rendered":"https:\/\/economicherald.net\/?p=7239"},"modified":"2024-03-16T09:52:14","modified_gmt":"2024-03-16T09:52:14","slug":"criterion-are-profits-on-the-horizon-for-the-asxs-aged-care-orphan","status":"publish","type":"post","link":"https:\/\/economicherald.net\/?p=7239","title":{"rendered":"CRITERION: Are profits on the horizon for the ASX\u2019s aged care orphan?"},"content":{"rendered":"

Aged Care reforms bode well for operators such as Regis Healthcare (ASX:REG)<\/a>
\nREG shares already have soared 170% over the past year, partly on the back of\u00a0 increased government support
\nBroker Ord Minnett forecasts REG to make a net loss of $20.8m this year, swinging to a $46m profit in 2024-25<\/p>\n

\u00a0<\/p>\n

The final report of the Federal Government\u2019s Aged Care Taskforce presents a grim picture of spiralling costs as a horde of greying baby boomers moves into aged care.<\/p>\n

The government\u2019s aged care bill in the 2021-22 year was $24.8 billion, $14.6 billion for residential care and the remainder for home care services.<\/p>\n

By 2032, the residential aged care cost is projected to blow out to $41.2bn. Almost 69 per cent of residential aged care (RAC) providers lost money in 2021-22, compared with 54 per cent a year previously.<\/p>\n

The report says while the sector probably is at its low point, \u201cproviders remain constrained in where they can earn revenue, particularly in accommodation and everyday living expenses.\u201d<\/p>\n

At face value, investors steer clear of the sector. In reality, the reforms already implemented \u2013 and the promise of more \u2013 bode well for operators such as Regis Healthcare (ASX:REG)<\/a>.<\/strong><\/p>\n\n

\ufeff<\/span><\/span>\u00a0<\/p>\n

Regis shares already have soared 170 per cent over the past year, partly on the back of earlier increased government support (notably for improved carer wages).<\/p>\n

Now, the taskforce suggests that residents who can afford to pay for non-care expenses (such as everyday living costs) should make a \u201cfair contribution\u201d.<\/p>\n

According to the report, providers lost a collective $2.26bn on accommodation (non-caring) activities in 2021-22, equivalent to $14.86 per day per resident. That makes it hard for them invest the billions required in upgraded facilities.<\/p>\n

The providers are also losing an average $4 per resident per day on the $61 basic daily fee \u2013 set at 85 per cent of the aged pension \u2013 plus a government-funded \u2018hotelling supplement\u2019 of $11 for everyday living costs.<\/p>\n

The report also notes residents paying a daily accommodation payment (DAP) are cross-subsiding those paying the upfront refundable accommodation deposit, or RAD.<\/p>\n

In essence, the providers rely on the investments returns on the RADs to recoup the full cost of the service \u2013 and this is not usually possible.<\/p>\n

The report would like to see RADs phased out by 2035 \u2013 a deadline seen as overly ambitious.<\/p>\n

In the interim, the report proposes that providers retain up to 3 per cent of the RAD \u00a0annually \u2013 $45 per day on the maximum RAD of $550,000 per room \u2013 with the DAPs also indexed to inflation.<\/p>\n

We will have to wait until April or May to see whether the government adopts the proposals, but it helps that health minister Anika Wells chaired the inquiry.<\/p>\n

Replete with acronyms and jargon, the report belies the stated intention of making\u00a0 the aged care funding maze more understandable.<\/p>\n

The comprehensible bit is that well as easing pressure the public purse, the proposed reforms would be positive for the larger operations with economies of scale.<\/p>\n

Naturally this includes Regis, which is now an ASX \u2018orphan\u2019 after two other operators \u2013 Estia Health and Japara Healthcare \u2013\u00a0 were privatised.<\/p>\n

Regis is one of the biggest providers overall, with more than 7600 beds across 68 homes. Last year Regis paid $74m for private RAC CPSM, which added 644 beds across five Queensland facilities.<\/p>\n

Regis reported December half year revenue of $480m, 15 per cent higher and a net loss (after non cash write downs) of $12.1m. Underlying earnings increased 14 per cent to $52.1m.<\/p>\n

Consistent with the sector, about three-quarters of revenue derived from government funding.<\/p>\n

Broker Ord Minnett forecasts Regis to make a net loss of $20.8m this year, swinging to a $46m profit in 2024-25.<\/p>\n

Regis is a fave of Wilson Asset Management\u2019s small caps guru Tobias Yao, who expects further consolidation as the compliance burdens become too much for smaller operators.<\/p>\n

\u00a0<\/p>\n

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.<\/strong><\/p>\n

<\/span><\/p>\n

The post CRITERION: Are profits on the horizon for the ASX\u2019s aged care orphan?<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"

Aged Care reforms bode well for operators such as Regis Healthcare (ASX:REG) REG shares already have soared 170% over the past year, partly on the [more…]<\/a><\/p>\n","protected":false},"author":0,"featured_media":7240,"comment_status":"","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-7239","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"yoast_head":"\nCRITERION: Are profits on the horizon for the ASX\u2019s aged care orphan? - Economic Herald<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/economicherald.net\/?p=7239\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"CRITERION: Are profits on the horizon for the ASX\u2019s aged care orphan? 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