Estia Health to front Federal Court in class action

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Following aged care community operator Estia Health (ASX: EHE) being served with a class action in the Federal Court, law firm Phi Finney McDonald will act on behalf of aggrieved shareholders.

The firm argues Estia breached its continuous market disclosure obligations regarding the financial impact of its Kennedy Health Care (KHC) buyout.

In December 2015, Estia announced the acquisition of KHC which owned and operated eight aged care facilities and 959 operational places, across Metropolitan South and West Sydney and Wollongong in New South Wales.

KHC was 100% family owned and received $220M in cash and 6.6M in shares then valued at $7.50 each or $50M.

(Today the share price is $2.61 and the $50M is down to $17.2M).

Estia then upgraded its profit guidance, forecasting a 25% growth in NPAT with claims the acquired sites would be “immediately EPS accretive“, reaffirming its guidance twice, in February 2016 and again in April 2016, declaring to the market its integration of KHC was “on track“.

It didn’t take long before the rosy outlook started to darken.

In its 2016 full year results released to the market on 28 August, Estia disclosed its FY16 earnings were materially lower than the guidance it had confirmed only four months prior.

NPAT missed the mark by 7.5%, while on the same day Estia made an underlying FY17 EBITDA forecast that was 15% shy of market consensus forecasts.

Two days later Estia founder Peter Arvanitis (pictured) announced his resignation as a director at Estia and the sale of his 17.75 million shares, representing 9.43% of the company’s issued share capital.

From 26 August to 2 September, shares plummeted from $4.65 each to $2.98.

In mid-September, CEO Paul Gregerson stepped down as CEO and former CFO Joe Genova also left the company.

Norah Barlow was appointed interim CEO and was made permanent in November and left Estia in late 2018.

In December 2016 Estia finally admitted it had poorly handled the integration of KHC, stunting its financial performance.

(We note that Estia was note alone in the share price drop. Regis and Japara suffered steady declines from April as well – without the Kennedy portfolios).

Estia has 72 aged care communities across VIC, SA, NSW, and QLD.

The class action comes as the Royal Commission into Aged Care continues.

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