Why the Japara Share Price Fell

What happened to the Japara Healthcare share price?

Listing at around $2.40 in April 2014, Japara Healthcare [ASX:JHC] briefly traded below $1.90 at the start of 2015, before peaking at $3.45 towards the end of last year.

For much of this year Japara has traded in a pretty tight range, before falling out of bed last week. Shares have dropped around 14%, in what has been a dramatic time for the sector.

Why did Japara Healthcare shares do this?

With an ever aging population, you might be inclined to think that Japara — a residential aged care operator with 35 facilities — would be on the verge of a sustained period of growth.

In its interim results in February, Japara’s numbers looked solid — revenue up 13.4% for the six months to December 2015, with a 10% growth in EBITDA, enabling an increase in the size of its dividend.

However, brokers have started downgrading aged care operators last week, with some tough new regulatory changes destined to hit the industry. In a nutshell, less government money will be available for the sector, with aged care residents expected to pick up the difference.

What now for Japara Healthcare?

Although the full effects of the government cutbacks aren’t due to hit the industry until 2017–18, the market reacted quickly to the news. Aged care operators believe they can add revenue with in-house services like physio, for example, to help grow their margins.

But the market isn’t so sure. Some are expecting zero growth for the sector during the last part of this decade. Shareholders will be keenly awaiting their full-year results later this year to provide further guidance.

Matt Hibbard,
Money Morning

Money Morning Australia