Aged care operator Estia Health Ltd (ASX: EHE) experienced a horror share market debut on Friday which saw $176 million squeezed from the company's initial $1 billion market value.
While The Australian Financial Review reported the offer price as being $5.75, the shares tumbled as low as $4.73 before closing at $4.74 – down a whopping 17.6% – making it the worst float above $200 million of 2014.
Why did the stock fall?
Estia is one of Australia's largest aged care operators with a total of 39 facilities and more than 3,200 beds spread across Australia. Following on from the very successful floats of Japara Healthcare Ltd (ASX: JHC) and Regis Healthcare Limited (ASX: REG) earlier this year, Estia was expected to make a strong debut – particularly given that the stock was to open at a slight discount to its rivals at a P/E ratio of 21 times earnings.
It's possible however, that the shares may have fallen as a result of Estia missing out on some new aged care bed licenses issued by the government. Investors may believe that this will hinder Estia's growth prospects, while providing a significant boost for Japara and Regis – which were both granted licenses. Their shares rose 2.7% and 1.8% on Friday.
While Estia was unsure why it had not been granted the license, it reassured investors that its prospectus forecasts were not reliant on the new beds. As it stands, the company is expecting revenue of $284 million and EBIT of $27 million in 2015-16.
It's also possible that the float wasn't as successful as expected due to the attention and hype that had otherwise been directed towards the much larger Medibank Private Ltd (ASX: MPL) IPO, which went live nearly a fortnight ago. Given its relatively disappointing debut (relative to what some analysts and investors had been expecting), some investors may have been deterred from the IPO scene.
Should you buy?
Although the government's decision to not extend new beds to Estia was disappointing, the company is still an attractive prospect and well worth adding to your watchlist. While it has already grown strongly (it had just 13 facilities in October 2013, compared to 39 facilities today), the aged care sector is tipped to boom in the coming years.
In fact, according to Aged and Community Services Australia, the country will need 82,000 new aged care beds by 2020. Given that the most recent government licenses only created 11,196 new beds, that indicates that there will be plenty more opportunities for Estia to regain some ground.
