So where will the shares in Estia (EHE), the struggling aged care group, go this week after an eventful Friday?
Estia shares are in fact following a script familiar to many investors – boom, slide, bust, changes, promises to do better.
First they are floated nearly two years ago, then shares rise on the promise of an ageing population,the company starts turning in encouraging figures, starts buying smaller rivals, gets more finance (this time from a $300 million Westpac Credit Line), the shares then surge to an all time high as the herd clambers on board.
Then some cracks appear, some analysts start questioning the acquisition based growth strategy, then more signs of concern as the shares start drifting.
The Federal government reveals shock cuts to aged care spending in the budget.
A financial report (in this case the 2015-16 full year earnings report), reveals a very weak underlying performance as the company fails to meet guidance.
Investors start (belatedly) getting concerned about the growth by takeover approach and want the company to deal with weak earnings and the rising pile of debt.
The shares fall further, dragging down the sector on the ASX, then the regulators (The Federal Government) pours cold water on claims from the company (and others in the sector) that government spending cuts can be made up in other charges – the shares fall further.
Then the usual script sees either the CEO or the chairman go to offer a head to demanding (big) investors. In the case of Estia, founder and chair Peter Arvanitis quit nearly two weeks ago, selling his 55 million shares. The Chief Financial Officer, Joe Genova went late last month.
Shares fall further – then the Federal government makes soothing sounds about re-looking at some of the proposed cuts, investors realise that the price fall has gone too far and the shares start rising, dragging the rest of the sector with them.
Then the final stage in this chapter – the CEO goes – which happened on Friday when Paul Gregersen announced he was stepping on, but would stay on as a consultant while a new CEO was found.
Estia shares rise 3.55 on Friday to close at $3.20, pushing them to a small rise of 2.2% for the week. That is a long way from the high of $7.64 last November and the shares are 56% down for 2016 to date.
Now the final step in this typeof corporate drama would be a takeover from a rival, but no one is silly enough at the moment with Federal Government policy remaining uncertain.
Oh, then there’s the ‘kitchen sink’ clean out of the accounts,with write downs, losses and other costs taken all at once to load onto the old management.
Talk about being cynical.
So then what about private equity?
Well normally you’d say yep, but seeing local group, Quadrant sold Estia into the 2014 IPO, you would have to rule that approach out – at least for the time being while the company steadies itself.
Non-executive director Norah Barlow has been named as interim CEO while the hunt is on for a long-term replacement.
She told the media on Friday the focus will be on debt reduction, and there will be a halt to acquisitions. That is a repeat of what the previous management promised after the weak results were released in late August. Estia’s chair, Pat Grier and Ms Barlow both said the company would begin to engage with media, refresh the board and address investors’ concerns – all textbook stuff.
While there was no mention of a capital raising, Mr Grier said the company needed to be aware and focused on debt levels. "We accept that we are going to be very focused on reducing our leverage and there are some things we could do straight away but we won’t be getting into something like firesales."
He said nothing had changed in terms of the company’s fiscal 2017 earnings guidance, despite several analysts downgrading their earnings forecasts following the government’s clarification on fees.
