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Aged care sector braces for royal commission

Glenn Freeman  |  18 Sep 2018Text size  Decrease  Increase  |  
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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.

morrison article

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.

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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

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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