Leading investment bank UBS is hosting a breakfast on Monday at its Melbourne office (in Ernst & Young's Exhibition Street tower) for investors to hear from Estia Health's chief executive Paul Gregersen.
Listed aged care stocks copped a pounding on the market last week as analysts turned bearish on their near-term earnings growth, twigging to the impact of revised Commonwealth funding arrangements in Scott Morrison's May 3 budget.
Estia took a tumble on Thursday, falling from $5.64 to $5.32. On Friday morning, UBS' sales desk broadcast an all-client "RED ALERT" on Friday morning to "BUY EHE". It briefly spiked to $5.44 (although Morgan Stanley and Deutsche Bank moved 35 per cent of the volume; UBS managed only 6.7 per cent, so fat lot of good their red alerts do) before ending the week at $5.38.
Shortselling in the stock has doubled in recent weeks to 5.6 million shares, still at a relatively low 2.97 per cent of the register (as at May 30).
UBS shares an extensive history with Estia. They floated the company for private equity firm Quadrant in December 2014 (along with MS and Deutsche) at $5.75, then last month (during budget week) offloaded Quadrant's final 30.84 million shares at $5.56 – a large chunk of which were taken up by Australian equities behemoth Perpetual, which now speaks for 8.3 per cent of the company. Note that the Estia relationship was led by UBS banker Michael Stock, who has since defected to competitor Credit Suisse.
With private equity cashing out just three days after the budget, it's no surprise that analysts are heading the same way. Having run the numbers on ScoMo's changes to Aged Care Funding Instruments (a major source of revenue for Estia and its competitors Japara and Regis) and after talking to these operators, Bank of America Merrill Lynch reckons "the listed aged-care companies are facing zero earnings growth from fiscal 2017 through to fiscal 2019".
No doubt over breakfast, investors will be asking Gregersen if he agrees with BAML's take. And no doubt he doesn't.
A bit like UBS, whose health research is led by respected analyst Andrew Goodsall (who we spotted in Canberra on budget day). His target price for Estia is a tearing $8.15, a full 33.2 per cent above his peers' consensus of $6.12 (Morgan Stanley's is $5.60 and BAML $5.45). And UBS is forecasting net profit after tax a full 10.5 per cent and 16 per cent over consensus in FY17 and FY18. Now that's optimism!
Will Gregersen be driving to breakfast this morning? We're sure UBS has room for him in the underground carpark (he can slot in alongside Qantas chairman Big Leigh Clifford). Lord knows they can't have him parking his black Ferrari 458 Italia (with custom Victorian plate "ASXEHE") out on the street where miserly fund managers might see it! And just imagine if Estia founder (and now non-executive director) Peter Arvanitis comes too, in his red Lamborghini Aventador (with custom rego "V ESTIA"). Honestly, you'd think these blokes, operating a business guzzling from the taxpayer chalice, could exercise just a modicum of self-awareness and restraint. But having flaunted it, there will be few tears if they now come unstuck, as plenty in the market are now beginning to predict. Except at UBS.
