CRITERION: Investing in aged care - it never gets old

Conceptually, investing in the aged-care sector looks a no-brainer given the unavoidable demographic tide that will result in a doubling of Australians aged over 85 by 2040.

But at the bedside level, the residential aged care sector has been in more strife than a Werribee duck, as the old timers might politely phrase it.

Headwinds include cost inflation that’s hard to recover with price increases, acute staffing shortages and a poor public perception exacerbated by the unsavoury findings of the recent aged care royal commission.

And did we mention the curse of Covid, which continues to be a potent killer among the vulnerable elderly?

For investors, it could be a case of the darkest hour before the dawn as increased government funding flows to the sector. Pro-competitive measures such as the removal of limitations on aged-care places should also work in favour of the bigger providers.

Acquisitions are already afoot, with two of the big four ASX aged care and retirement home providers already taken over: private equiteer Brookfield moved on Aveo in 2019 and Japara Health last year was bought by the not-for-profit Calvary Healthcare for $278 million.

That leaves the $570 million market cap Estia Health (ASX:EHE) and the $680m Regis Healthcare (ASX:REG), which rebuffed a takeover offer in mid 2020.

Accounting flummery aside, Estia reported first (December half) underlying earnings of $9 million, 116 per cent higher.
Regis Healthcare lifted half year underlying earnings by 13 per cent to $44 million, despite “the most difficult environment the sector has witnessed in a generation.”

In the small cap realm, a number of ASX entrants are applying technology – such as sensors and artificial intelligence – to address staffing shortages and cater for the burgeoning home care sector.

HSC Technology (ASX:HSC) provides wearable devices and sensors to avoid mishaps such as falls.

Intelicare (ASX:ICR) has the same remit: its devices are placed around the home to monitor activity levels and temperature.
Careteq (ASX:CTQ) derives subscription-based income from its products that include fall detection and medication reminders.

Careteq chief executive Peter Scala notes that falls attracted attention during the royal commission, with “horror stories” of at-home victims being left for days without detection.

At the same time, more people want to age in their own home – and understandably.

“We can monitor fall detection without the need for wearables,” he says. “Having access to this tech is really the game changer.”
Painchek (ASX:PCK) applies an algorithmic solution to pain assessment – a common problem in nursing homes when a resident with dementia is unable to verbalise discomfort.

Using a smartphone snap of the person’s face, Painchek derives a reliable pain score that helps with care delivery (such as better administration of meds).

Having benefited from a ScoMo era funding grant, Painchek boasts a presence in 1500 facilities, covering 126,000 beds. Locally the company has a 60 per cent market share, so with limited growth upside here the company is eyeing the UK and US markets.

The reality of growing old and frail is that the TV becomes important, but more often than not the box is blaring free-to-air daytime soap.

Swift Networks (ASX:SW1) strives for more attractive televisual appeal with close-loop entertainment networks that deliver 1000 movies, TV shows and bespoke content to aged care facilities, as well as mining camps and hospitality venues.

Sadly, these small caps have not been spared the broader tech sector correction. Intelicare shares have lost three-quarters of its value over the last year, while Careteq shares have halved since their January 2022 IPO.

The generous take on the minnows is that their revenues are growing past-pandemic, but from a modest base. The acid test is when they need more dough in a funding market that looks as attractive as congealed bangers and mash.

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