Investment house Jarden rates Regis Healthcare, and these 4 ASX online classified stocks. Picture Getty
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Investment group Jarden has given Regis Healthcare (ASX:REG) an OVERWEIGHT rating, with a target price of $3.35 (versus current price of $3.12).
The $900m market capped Regis is one of the largest aged-care operators in Australia. The company owns 64 residential aged care homes, six home care services, five day therapy centres, four day respite centres and six retirement villages – employing around 9,000 people.
Jarden believes the Government announcement in December that it will fund an additional $10/bed to help fund the 5.75% award wage increase for aged-care staff is a relief for the company amid staff shortages.
“New funding for staff costs is certainly welcomed, and should theoretically assist cover staff costs already being paid by REG (assuming there are no extra conditions),” noted Jarden.
“We see this additional funding as representing yet another sign of the Government’s commitment to improving sector profitability.”
However, Jarden warned that the latest Registered Nursing (RN) vacancies data remain persistently high, suggesting ongoing shortages and increased reliance on more expensive agency nurses.
“This is while REG, along with the rest of the industry, has had to ramp up RN care minutes to the 40 minute target by October 2023, which we understand many operators (including REG) have struggled to achieve.”
Meanwhile, the Aged Care Taskforce is set to publish their final report soon.
Whilst it is not clear if their findings will be made public, or if they will instead be released as part of the Budget next May 2024, Jarden says it is expecting the likely outcomes to at least be net neutral or positive to REG.
Jarden has therefore upgraded its EPS forecasts for Regis in FY24⁄FY25/FY26 by +8.8%/+13.3%⁄+14.9%, respectively.
Specifically Jarden noted:
“Revenues: An increase to REG’s Government revenues per bed (which account for ~70% of Group revenues) from ~$280 as at 1Q24 to $290, resulting in ~$15m of revenues in FY24 for seven months’ contribution (or $25m on a full-year basis).
“Staff costs: An increase in staff costs to reflect increased use of agency costs to fill RN shortages.”
Meanwhile, Jarden has also updated its ratings and forecasts for the Australian Online Classifieds sector due to a change in its lead analyst.
Here are the four online classified stocks being rated:
Seek (ASX:SEK) – BUY, $29.60 target price (vs $25.23 current price)
“The market is not factoring SEK’s $2bn revenue aspiration in ANZ & Asia by FY28,” said Jarden.
“Seek is a quality business with what we consider favourable structural drivers, strong pricing power, and a skilled management team.
“Seek has highlighted a $2bn revenue opportunity by FY28.
“Yield growth in ANZ is the largest contributor, with likely drivers to include new ad constructs, higher depth penetration, new products, underlying price increases and wage growth.
“In addition, we expect Seek Asia to outperform, albeit off a lower base, over this time period due to favourable structural drivers of volume growth.
“We caution that achievement of Seek’s aspiration is unlikely to be linear given the natural volatility of job ad listings,” said the note from Jarden.
REA Group (ASX:REA) – UNDERWEIGHT, $155 target price (vs $177.25 current price)
“Our base case [for REA] assumes 19% growth in 1H24 revenue to $731.6m, +14% growth in costs to $295.4m, 22% growth in EBITDA to $436.2m, and +27% growth in NPAT to $260.4m,” noted Jarden.
“REA Group is a quality business with what we consider a strong management team, and a track record of consistently growing yield by double digits %.
“We see REA Group’s aspiration to grow its yield by double digits % as realistic on a 3-5 year view; in FY24, we assume +15% and 10%/year from FY25-FY28 as our base case.
“This drives EPS growth of ~18% on a 5-year view. We also see upside if REA Group can execute in India, though the opportunity is at a very early stage.“
“Despite this, we have an Underweight rating on REA Group on valuation grounds. We think REA Group should generally trade at a premium to Domain, however, given the operating leverage in Domain, we see a similar FY24E PE multiple as justifiable.
“Key risks include a soft housing market that may impact both listing volumes, and REA Group’s ability to increase prices.
“Pressure on marketing budgets may force some vendors to choose between REA and Domain, where they may have previously advertised on both,” said Jarden.
Domain (ASX:DHG) – OVERWEIGHT, $3.80 target price (vs $3.25 current price)
“We see Domain’s aspiration to grow its controllable yield by ~12% through the cycle as being realistic on a 3-5 year view,” said Jarden.
“In FY24, we assume +13%, however, we are more conservatively assume 11% in FY25, 10% in FY26 and FY27 and 9% in FY28.
“Given Domain’s smaller scale to REA, it has significantly more leverage to fluctuations in listing volumes in the short term, but a structurally lower margin as a result.
“We believe Domain should trade at a discount to REA Group through the cycle, however, given the operating leverage in Domain in the short term, we think a similar multiple on a FY24 basis is justifiable.
“We value Domain at $3.80, which implies ~30x FY26 earnings, which compares with ~33x for REA.
“We therefore have an Overweight rating on Domain,” said Jarden.
Carsales.com (ASX:CAR) – UNDERWEIGHT, $27.50 target price (vs $31.50 current price)
“Trading at 20.5x FY25 EBITDA, we think the market is now applying an overly optimistic multiple,” explained Jarden.
“We forecast group revenue of $512m and EBITDA of $274m. This represents growth on a reported basis of +54% for each, respectively, as a result of the impact of acquisitions in North America and Brazil.
“Carsales is a high quality business with a proven track record of leveraging its domestic capabilities via acquisitions in other geographies.
“In Australia, while this business is relatively mature, we still see scope for its Dealer and Private businesses to grow at a mid-high SD CAGR on a 3-5 year view.
“In the US, CAR has and will continue to leverage its experience in other markets to successfully grow this business; we factor a 12%/14% 3-year revenue/EBITDA CAGR to FY26 as our base case.
“In addition, we expect CAR to benefit from leveraging favourable structural dynamics with its expertise in Brazil, as well as continued growth in Korea.
“However, while we believe that CAR has deserved a re-rating versus 12 months ago, we believe the market has gone from not pricing in execution in the US, to factoring a bullish scenario.
“We therefore do not see a favourable risk-reward for investors at current levels and, as a result, we have an Underweight rating and $27.50 12-month target price.
“Key risks include competition, given CAR’s dominant market position in most markets in which it operates; and execution risk in the USA and Brazil,” said Jarden.
The views, information, or opinions expressed in the interview in this article are solely those of Jarden, and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
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