@gold1650, "...so many moving parts" sure is the operative...

@gold1650,

"...so many moving parts" sure is the operative phrase when it comes to these aged care operators.

About 2 years ago, I put in a bit of an effort in an attempt to distil the investment essence of these companies. I found that the more I looked at them and at the dynamics of the aged care industry, the less robust I found their business models to be. [*]

In essence, they appear to me to be children spawned by a particular confluence of somewhat major drivers:

- some structurally permanent (the ageing demographic);
- some cyclical (property prices in Australia's major cities); and
- some regulatory (the legislation surrounding RADs and DAPs)

To my way of thinking at the time, the first of these drivers is the investment appeal of the stock, and is unlikely to go away (in fact, it is likely to intensify).

However, it is dwarfed by the potential negatives of - as you have alluded - changes in the regulatory environment, as well as potential capital movements under changed RAD dynamics.

Regulatory:
Caring properly for the nation's elderly is very very different to manufacturing widgets, or selling financial services to unwitting consumers; it's even very different to putting livestock on a boat bound for distant shores; politically and philosophically, it is a very sensitive national issue.
My concern - similar to yours - has been that it will not be possible for shareholders in companies that provide aged care services to ever be allowed to earn a super-normal returns and that, because the financial performance of such companies are highly visible in the public domain and, as such, any excess returns will always be legislated away... which, the champagne Socialist in me feels, is fitting and proper.

RADs vs DAPs:
This is where my biggest concerns lay at the time, namely the sheer dominance on balance sheets of the RAD liabilities. While the property market party was rocking, which was conducive to RAD flows going in the right direction, I kept coming up against the question of what would happen when the music stopped and the RADs started leaking out, in favour of daily payments.


Don't get me wrong; I don't think these are in any way flawed businesses. I was just a bit wary of some specific aspects of these companies.

So far, my reservations have been unfounded.
On the other hand, the sorts of organic growth that I had envisaged two years ago when I conducted a study of the sectors, has not materialised.

Which probably explains why the share prices of the listed companies have not done very much in the intervening period.

Maybe your nudge might prompt me to re-visit to the sector at some stage.


[*] I recall posting the following ramblings at the time:

https://hotcopper.com.au/posts/18962907/single