Regis Healthcare Limited (REG): Care in the twilight years

Regis Healthcare Limited (REG) is an aged care provider. Through its services and facilities, Regis continues to provide innovative residential, respite care, ageing in place and dementia care to help residents and home care clients. The outlook continues to improve for REG. Industry feedback and recent datapoints suggest 1Q24 is tracking well. M&A opportunities are increasing and higher resident contributions are on the table for FY25+. We recently upgraded REG to Accumulate (was Hold) with our more positive investment view underpinned by three key factors:

1) occupancy is likely to continue to surprise to the upside; 2) potential bolt-on acquisitions could be materially accretive; 3) reduced agency utilisation and higher accommodation income could partially offset the transition to 200 care minutes. With positive catalysts on the horizon and REG the last available listed exposure, we see its recent re-rate continuing. After ~7 years in decline, sector occupancy is beginning to recover. Recent data and conversations with operators suggest that trends have been increasingly positive over the last six months as: 1) pandemic headwinds have abated; 2) the expansion of homecare packages has slowed; and, 3) new bed supply has fallen dramatically. REG outperformed the sector by close to 500bps in FY23 (91.5%), and we expect this to continue in FY24E (93.3%) and FY25E (94.2%), increasingly supported by baby-boomer led demand.