Aged care sector braces for royal commission
The extent to which companies will be affected by the mooted royal commission into the aged care sector will depend largely on the terms of reference, says Morningstar.
Mentioned: Regis Healthcare Ltd (REG)
The extent to which companies will be affected by the mooted royal commission into the aged care sector will depend largely on the terms of reference, says Morningstar.
Scott Morrison announced the inquiry earlier this week following reports of widespread neglect, abuse and negligence in nursing homes and other aged care facilities across Australia.
Morrison says the royal commission's parameters will be determined in consultation with the community, including residents, their families and aged care service providers. Details are expected to be finalised in the coming weeks.
Scott Morrison announced the royal commission following reports of abuse
Morningstar equity analyst Tony Sherlock says the longer-term impact of the royal commission is hard to predict until its terms of reference are set.
No-moat Aveo Group is one of Australia's largest owners and developers of retirement living units.
According to Sherlock, if the royal commission is restricted to aged care service providers, "it will have only a very minimal impact".
"The terms of reference are not out. But some good might come of it. It might actually turn the spotlight back on the government and the way the way the sector is funded," Sherlock says.
Only about 3 per cent of overall group earnings is generated by Aveo's aged care operations, which consists of 406 beds across five facilities in NSW, Queensland and Victoria.
It also has some exposure to aged care services through its Freedom program, which adds nursing home-style care to some of its retirement homes, at an additional cost to residents.
Since dropping to about $1.90 yesterday, Aveo's share price has since rebounded to $2.10 at time of publication – marginally below Morningstar's $2.80 fair value estimate.
Morrison announced the royal commission ahead of a damning two-part report into the sector on the ABC's Four Corners program, while audits at some aged care facilities have revealed a dramatic increase in non-compliance and abuses in the aged care sector.
"Incidences of older people being hurt by failures of care simply cannot be explained or excused. We must be assured about how widespread these cases are,” the Prime Minister said on Sunday.
"As a community, we expect high standards for the quality and safety of aged care services. This royal commission will be about proactively determining what we need to do in the future to ensure these expectations can be met.”
He also highlighted that there would be no "pre-determined outcomes", saying "whether there is a crisis in aged care or not is to be determined."
Markets reacted on Monday, with falls among healthcare providers of almost 20 per cent.
Estia Health Ltd was the hardest hit, its share price falling 18.6 per cent over the day.
Estia was among the companies supporting Morrison's announcement of an inquiry and was looking forward to engaging in the consultation on the terms of reference for the inquiry.
Listed aged care providers Regis Healthcare, Japara Healthcare and Aveo Group (ASX: AOG) fell 17.1 per cent, 17 per cent and 7.2 per cent, respectively.
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Glenn Freeman is senior editor, Morningstar Australia
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