Strong investor appetite for opportunities to profit from Australia's ageing population has delivered a strong debut from the first ASX-listed aged-care company.
After closing its first day of trade 35 per cent above its initial public offer price Japara Healthcare will now need to show it can deliver on its promise of growth.
Japara Healthcare started trading at $2.48 on Thursday morning, up 24 per cent from its initial public offer price of $2. By the close shares were 35 per cent above the offer price at $2.70, while the S&P/ASX 200 was up 0.6 per cent. The company is a newly merged entity that brings together two businesses that both previously also operated under the Japara name - an unlisted property trust, and a company that manages aged care facilities operating within the properties.
Institutional investors flocked to the IPO convinced by the company's story that Australia's ageing baby-boomer generation is set to provide a record number of elderly people needing residential care in the coming years, while the industry is ripe for consolidation.
The total size of the domestic aged care market is 186,000 beds across 2700 facilities, managed by about 1400 providers. Of that, Melbourne-based Japara controls 3000 beds across 35 facilities in Victoria, NSW, and Tasmania, all operating under different names.
"We plan to grow by building new facilities, extending existing ones, making acquisitions, and developing partnerships with other providers in the continuum of care such as retirement villages and hospitals," Japara Healthcare chief executive Andrew Sudholz said.
The Bureau of Statistics predicts the number of Australians aged over 85 will double in the coming 20 years, while industry data indicates the population afflicted with dementia will double in the next 10 years. "That signals enormous growth in our resident profile over the coming decades," Mr Sudholz said.
All residents in Japara facilities must supply a bond upon moving in. The average accommodation bond is $250,000, meaning the company has a strong cash position that can be deployed to self-fund capital growth.
Underwriters Macquarie Group and co-brokers Morgans and CBA Equities priced the shares at $2 apiece in a deal that valued the company at $525 million. The price was calculated at 19 times forecast 2015 earnings.
Japara Healthcare is the first pure play listed aged-care operator on the local bourse, so direct comparisons are difficult.
However, analysts said the price appeared discounted compared to private hospital landlord and operator Ramsay Health Care, which is trading at about 25 times forward earnings, and New Zealand listed aged care providers Summerset and Ryman Healthcare, which are trading on multiples of more than 22 times forward earnings.
"New Zealand pension funds were … among the first investors to put their hand up to participate in the deal," Macquarie Group co-head of equity capital markets Hugh Falcon said.
