Regis Healthcare and Japara Healthcare give confidence for future aged-care provider IPOs

The successes of Regis Healthcare and Japara Healthcare may lure more to the market. Photo: Nic WalkerA strong sharemarket debut from Regis Healthcare and Japara Healthcare’s resilient start to public ownership will lure more aged-care providers down the initial public offering route, analysts and experts have said.
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Patrick Reid, the chief executive of industry lobby group Leading Age Services Australia, said a boom in the section of the population aged over 65 years made the sector attractive to investors.

“In terms of demand, we need to build around 80,000 beds in the next 10 years,” he said. “One of the challenges is the cost to build those beds is about $21 billion. The Commonwealth isn’t in a position to fund that itself.”

Although the rising demand from the ageing population is underpinning a need to build beds, it is not the main reason that companies are raising capital from equity markets.

An analyst who declined to be named said the rush of aged-care operators to the market was based on the high prices they were able to get. Regis shares closed at $4.02, a 10 per cent rise from the $3.65 offer price. At that price the $1.1 billion company is valued at about 25 times its net earnings in 2015-16.

In comparison, Japara’s forward price-to-earnings multiple, a measure used to show how expensive a company is compared to its peers, is 22 times. Healthcare companies in the S&P/ASX200 index are trading on a forward multiple of 18 times.

The analyst said more aged-care IPOs are “highly likely, just given the multiple that Regis got away on”.

In terms of potential IPO candidates, Mr Reid said: “There is a few lining up.”

The float of New Zealand operator Oceania Living was recently pulled in favour of a trade sale. However the Quadrant Private Equity-backed operator Estia Health is progressing towards an IPO early next year, a source familiar with the sale process said.

However Mr Reid urged potential investors to consider the risks posed by changes to subsidy and regulation.

Recent policy changes have led to the removal of the payroll tax supplement and dementia supplement for aged-care providers. “We saw the outflow of $700 million of funding in May and June this year,” Mr Reid said.

“That’s the sovereign risk that I think investors need to weigh carefully.”

Japara’s share price has been jolted by the policy changes. The stock closed down 0.8 per cent on Tuesday at $2.37.

After listing at $2 a share in the $525 million float, Japara has traded above its offer price, but is languishing below a high of $2.72 hit in May.

The analyst said floats coming to the market now, such as Regis, may prove to be better timed. “Given the fact you’ve had a couple of reforms come through … moving forward I think there’s less relative risk,” the analyst said.

But expectations of a ramp up of takeover activity may need to be scaled back. Unlike Japara, which has been buying up smaller operators, Regis has a greater focus on expanding its network by building new homes, as well as adding capacity to existing homes.

In a note to clients, CLSA analysts David Stanton and Zara Lyons said Regis deserved to trade at a premium to Japara because it has higher earnings per place, has more urban places and excess capacity to take in clients

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Bears bite but banks expected to post hefty profits

The banks are expected to post big annual profits again for 2014 despite investors dumping them ahead of the Reserve Bank’s decision to keep the cash rate at 2.5 per cent on Tuesday afternoon.
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There could be some long-term justifications for the sell-off. Goldman Sachs is forecasting that the recovery in lending growth, up 5.4 per cent compared to a year ago, will “stall” in the next 12 months.

Higher capital imposts are also more likely for the bigger banks in the years ahead.

Bank of Queensland will kick off the main round of bank annual reports on October 9, with analyst forecasts tipping a 20 per cent rise in cash profit for the year to about $300 million and a 13 per cent rise in earnings and dividends a share.

Australian Prudential Regulation Authority figures show BoQ’s mortgage lending grew about 2 per cent between August last year and August this year. This is well behind system housing growth of 6.7 per cent. But BoQ will get a big boost from $440 million in business loans and deposits it bought with its acquisition of Investec Bank (Australia), completed in late July.

According to APRA figures, BoQ’s business loan book has grown about 5.8 per cent in the year to August, compared to total business lending growth of 3.2 per cent.

This was also aided by new customer wins outside Queensland. The company is also expected to give an update on the search for a replacement for chief executive Stuart Grimshaw, who is expected to take up a new job at pay day lender EZCorp in Texas at the end of October.

But the focus will be on the slower growing big banks, three of which – ANZ Bank, NAB and Westpac – report in late October and early November, and whether they can continue their big shareholder returns of recent years.

Investors are worried the end is nigh for big profits and dividends at the big banks, with the Murray financial system inquiry expected to recommend the majors raise more capital against their mortgages.

There is also the spectre of moves by the Reserve Bank and APRA to dampen soaring house prices in Sydney and Melbourne with targeted measures against investors. However, Deutsche Bank analysts James Freeman and Andrew Triggs expect the impact of any such measures on the big banks to be “limited”.

Goldman Sachs analysts Andrew Lyons and Jien Goh expect NAB to lift its common equity tier one capital level to the top of its target range of between 8.75 and 9.25 per cent due to woes in its British division. But it’s likely too early for any real impact from these possibilities. Once again, the investment bank expects rock bottom arrears rates will continue to keep a lid on impairments, which in turn bolsters earnings.

Consensus estimates have NAB as the worst performer, with about 6 per cent growth in cash profits for 2014 to about $6.2 billion and earnings per share up about 2.7 per cent to $2.60. Its British business continues to be a drag, with provisions likely to hit earnings. New chief executive Andrew Thorburn is expected to give an update on the listing of its US business Great Western Bancorp and a possible sale of MLC’s life insurance arm.

NAB has been gaining ground in mortgages in Australia, but has been losing business borrowers to Westpac and ANZ. But Goldman Sachs believes NAB is beginning to claw those back, with its total lending growth expected to be about 3.5 per cent for the second half of 2014, ahead of ANZ on about 2.5 per cent.

ANZ is expected to report better earnings, however, with a 9 per cent rise in cash profits to just over $7 billion for 2014, according to consensus estimates. Westpac is expected to report a similar rise in cash profit after tax of about 8 per cent to $7.6 billion. Westpac is expected to pay out about $2.42 a share in dividends for the year and ANZ about $2.53.

Investors should also be happy with Macquarie Group, which has achieved huge mortgage growth in the year to August of 66 per cent, according to APRA, and has indicated better than expected fee revenue. On October 31, Goldman Sachs expects it to report a 28 per cent rise in its cash profit for its first half 2015 result to $642 million and a 37 per cent rise in dividends a share to $1.35.

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No bubble in RBA lexicon

Bursting the bubble: The Reserve Bank has refused to use the word ‘bubble’ to describe house prices in Sydney, which have risen by 15 per cent in the past year. Photo: Graham Tidy Bursting the bubble: The Reserve Bank have refused to use the word ‘bubble’ to describe house prices in Sydney, which have risen by 15 per cent in the past year.
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Bursting the bubble: The Reserve Bank have refused to use the word ‘bubble’ to describe house prices in Sydney, which have risen by 15 per cent in the past year.

Bursting the bubble: The Reserve Bank have refused to use the word ‘bubble’ to describe house prices in Sydney, which have risen by 15 per cent in the past year.

When it comes to housing bubbles, our Reserve Bank prefers not to use the word ‘bubble’ at all. It doesn’t even want us to think about it.

Luci Ellis, the RBA’s head of financial stability, appeared before a senate committee in Canberra last week to talk about housing affordability.

Thanks to that meeting we now know that the central bank will soon announce how it plans to clamp down on speculative investor activity in the runaway property markets in Sydney and Melbourne.

Ellis said the RBA was very concerned about the rate at which house prices were growing. But she refused to use the word ‘bubble’ to describe house prices in Sydney, which have risen by 15 per cent in the past year.

“I don’t think that’s a particularly helpful way to frame the problem,” Ellis told senators.

“What matters is how much speculation there is in the market and what that might mean for a subsequent price cycle, and at the moment there is more speculative activity than we are comfortable with.” But given her dislike of the word, it was still surprising to learn that the RBA doesn’t spend much time trying to identify housing bubbles.

Ellis admitted so. And her reasoning does make sense. As she put it, when you try to pinpoint bubbles, “you end up with a debate about whose model is best, and people who confidently announce that prices have deviated X amount from fundamentals are usually using some pretty simple metrics to devise that, and they usually turn out to be quite misleading,” she said.

“People will confidently proclaim that they can identify bubbles but usually they end up identifying 18 of the last three [property] crashes.”

Ellis said some models may look only at the run-up in house prices, but “that is often not helpful”. “The run-up in prices in the United States was not big compared to some of the markets that didn’t have the same kind of crash,” she said.

“You have to look at the whole picture, including whether there’s been overbuilding — which there was in the US and in places like Ireland. You have to look at what lending standards were and what the resilience of the household sector is, to who can afford house prices.”

She said that’s what the RBA and the Australian Prudential and Regulation Authority have been doing — looking at the bigger housing sector picture.

But having taken that look, they’ve decided to do something about it.

Clancy Yeates is on leave.

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Renewables group defends aluminium exemption from RET

The peak body for wind and solar power has defended a plan to exempt the aluminium industry from the federal renewable energy target, saying it would come at only a trivial cost to consumers.
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The Clean Energy Council (CEC) believes that by offering up some concessions to industry, it might salvage bipartisan support for the target.

The council has published figures that show a full exemption for the aluminium industry would cause household power bills to rise by just $2 to $4.50 a year, after it had ROAM consulting examine the impact on prices year by year up to 2030.

It comes as a government backbencher leading a charge by 25 Coalition MPs for a full exemption for the sector described a possible bipartisan deal on the proposal as a “game changer”.

The CEC’s report argues that an increase in household bills of $2 to $4.50 per year is “a very low cost for other electricity consumers” if the proposal can restore bipartisan support for the scheme.

Opposition Leader Bill Shorten said on Tuesday that Labor had agreed to discussions that would see the aluminium industry viewed as a “special case” on the condition that “the government does not try to wreck the renewable energy target”.

It is Labor’s first concession in the RET talks which have seen it at loggerheads with the government since the release of the Warburton review of the target in August.

The review, which has been widely criticised within both government and industry, recommended Australia’s target be either closed to new projects or scaled back dramatically on the basis of yearly reviews.

The Australian Financial Review is reporting on Wednesday that cabinet formally rejected the review’s recommendations on Tuesday.

About 70 per cent of the aluminium sector’s electricity use is already exempt from Australia’s renewable energy target of 41,000 gigawatt hours of renewable energy production annually by 2020.

A deal would see a full exemption for the industry, but Fairfax Media understands that Labor does not favour a reduction in the overall gigawatt hour target to account for the removal of the sector’s liability under the scheme.

Dan Tehan, the Liberal Party backbencher who has been a key agitator for the exemption, said the opposition’s signal it was open to the proposal was “a potential game changer” in terms of both parties being able to negotiate a bipartisan outcome.

But he said it was “logical” to lower the overall renewable energy target if the proposal was adopted so that the burden of exempting the sector “doesn’t fall heavily on other electricity users”.

“Most sensible people would question whether 41,000 GwH is a realistic target,” Mr Tehan said.

The CEC’s report argues against reducing the target because multiple studies, including the government’s own modelling, had shown that reducing the RET would eventually increase power prices.

Meanwhile, figures published by Pitt & Sherry have shown that emissions from electricity generation have risen since the repeal of the carbon tax.

The latest carbon emissions index figures found emissions were 1.3 per cent higher in September than they were in June, before the axing of the carbon price.

Principal consultant Hugh Saddler said this was partly because of the carbon tax repeal, but also due to reduced gas generation in NSW, Victoria and South Australia and less wind power generation than usual.

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AFP asked to investigate Immigration Minister Scott Morrison over alleged leak

Under investigation: Immigration Minister Scott Morrison. Photo: Alex Ellinghausen Under investigation: Immigration Minister Scott Morrison. Photo: Alex Ellinghausen
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Sarah Hanson-Young: The Greens senator said that immigration information was being leaked at “suspiciously convenient times”. Photo: Alex Ellinghausen

Under investigation: Immigration Minister Scott Morrison. Photo: Alex Ellinghausen

Under investigation: Immigration Minister Scott Morrison. Photo: Alex Ellinghausen

The Australian Federal Police has been asked to investigate Immigration Minister Scott Morrison and his staff for leaking details of a confidential internal security report from Nauru to a journalist.

It was reported in News Corp publications on Friday that internal Transfield security documents from the offshore processing centre in Nauru revealed that it was “probable” that Save the Children staff were encouraging asylum seekers to self harm.

Fairfax Media understands that select paragraphs from the confidential report were provided to the journalist.

The article also reported Mr Morrison had ordered 10 Save the Children staff to be removed from the island under Section 70 of the Crimes Act for alleged misuse of privileged information. This prohibits any person employed by the Commonwealth to send information to a non-government officer.

Greens senator and immigration spokeswoman Sarah Hanson-Young has written to the AFP to say Mr Morrison’s staff may have contravened the same section of the Crimes Act by providing select confidential information to a journalist.

The AFP confirmed it had received the complaint. “We will evaluate this referral as per usual process,” an AFP spokeswoman said. “While this process is ongoing it would not be appropriate to comment further.”

The News Corp article “Truth Overboard” and a subsequent media conference on Friday by Mr Morrison came only days after serious allegations of sexual abuse against women and children were made by asylum seekers on the small island.

Mr Morrison used the news conference to launch an independent investigation into both issues, saying he did not want the public to be “played by mugs with allegations being used as some sort of political tactic”.

But the director of policy and public affairs of Save the Children, Mat Tinkler, said the non-government organisation still had not been provided with the report alleging staff were “coaching and encouraging” asylum seekers to protest and self harm, questioning why the media have been.

“Our staff are on Nauru because they care and deeply concerned when they then have their integrity questioned through the media. They are upset and anxious,” he said.

“As with all of the allegations, we have very little information, we have no information about the report.”

Mr Tinkler said four staff members had alreadyleft the island when the allegations were made and that the NGO was standing by all accused staff.

“I am concerned about the way this information has come to light, from a so-called intelligence report that has been provided to another media outlet which has clouded reality,” he said.

Mr Tinkler also said he was “not surprised” by the allegations of abuse.

“Instances of self harm have been documented on Nauru. The allegations have been substantiated,” he said.

In a letter to the AFP, Ms Hanson-Young has requested an investigation into the immigration department where “information has been published and communicated to non-commonwealth officers without authorisation”.

“Information seems to be leaking from the office of the minister and his department at suspiciously convenient times,” Ms Hanson-Young told Fairfax Media. “Disclosing privileged information is a serious breach of the Crimes Act and I’ve asked the AFP to get to the bottom of what’s going on.

“If the minister’s office has been involved in a breach of the Crimes Act, I expect the full force of the law to be applied.”

A spokeswoman for Mr Morrison said: “I will refer you to the AFP.”

But in an interview with Ray Hadley on Tuesday, Mr Morrison described the allegations of coaching asylum seekers to self harm and the sexual abuse of children and adults as “abhorrent”.

To which Mr Hadley replied: “The sexual assault of children in any circumstances is abhorrent but people making false allegations against security men is not quite equally abhorrent but, by gee, it leaves a bitter taste in the mouth.”

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