A ‘megatrend’ is a global, sustained development that impacts business, the economy, and society, redefining the future . One such megatrend is the world’s ageing population.
In 2014, three companies leveraged to this megatrend listed on the ASX – aged care operators Regis Healthcare (REG), Estia Health (EHE), and Japara Healthcare. All three stocks are currently trading below their recent highs.

There are two potential explanations for the slide. The first could be entitled “When Megatrends Collide.” 
Exploding demand of any commodity or service impacts supply, often leading to innovative ways of meeting the demand, at much higher costs, both to the company and ultimately to the consumer.  So here we have a classic example of the megatrend of an exploding ageing population in need of services rushing headlong into the megatrend of dramatic advances in the supply of healthcare solutions, coupled with equally dramatic increases in costs.  Standing in the centre between these megatrends is the Federal Government. Governments have stepped into healthcare markets in a variety of ways, often to the detriment to ‘for-profit’ companies.  When government subsidies are required to balance services against cost, the heavy hand of regulation can come into play.  Prior to the release of the FY 2016 budget, concerns over rising funding costs for our complex regulatory regime for aged care operators were rising.  When released, the government cut roughly $1.2 billion in funding over four years.
Investors playing in this field can expect further tinkering with the regulatory structure of healthcare operations and funding as costs continue to skyrocket.  Another diversified aged care operator, Aveo Group (AOG), is the target of an ACCC (Australian Competition and Consumer Commission) formal investigation into some of the company’s business practices, in response to concerns raised by Senior Advocacy Groups.  
The second explanation might be found in the variations in the nature of rising demand, even in a megatrend. An underlying assumption supporting the growth potential of aged care operators is that most seniors will prefer accommodations that offer a great level of assistance.  
A 2011 study from the Australian Housing and Urban Research Institute reported a surprising conclusion – most Australian seniors want to stay in their homes for as long as possible.  A 2015 study from the Australian Productivity Commission entitled “Housing Decisions of Older Australians” came to the same conclusion, stating that “over 60 per cent of older Australians would strongly prefer to ‘age in place’ by staying in their own homes.”
The report also highlighted what the federal government already knew – seniors ageing in place is substantially more cost effective than pumping subsidy after subsidy into the retirement village/aged care sector.  The report concluded with recommendations for policy changes to support seniors wishing to remain in their homes.
The government already offers home care packages for seniors ranging from $8,000 per year for seniors with basic needs to $49,500 per year for the highest level of required care.  Demand is staggering, with a reported 100,000 seniors waiting in line for an in-home care package.  The 2018 Budget includes $1.6 billion dollars in spending to add 14,000 new places for in-home care.  While the increase may seem minimal, taken as part of a longer-term government push towards more cost-effective healthcare options, it may be significant in the longer term.
Surprisingly, we only found one of the diversified residential living/aged care operators that includes in-home care in its offerings – Regis Healthcare. 
The business model for most of the ASX aged care operators focuses on residential arrangements providing graduated levels of care, from basic assisted living to skilled nursing care for later years.  There are variations in the late stage care, but the core residential arrangement is identical across operators, with some offering only residential living accommodations.
Regis supplements its aged care and residential living facilities with Day Therapy Centres and Home Care Services, both cost effective alternatives.  The Day Therapy Centres offer a wide range of allied health services available to both residents of retirement living villages and seniors remaining in their own homes.  Services range from rehabilitation and physiotherapy to podiatry, as well as social activities and educational classes for senior living.
Regis offers free assistance for seniors looking to apply for a government funded home-care package.  Privately funded packages are available as well, but the company has limited locations – Melbourne and Mildura in Victoria; Darwin in the Northern Territories; and Caims in Queensland.  Services available range from basic home care; transportation, and personal care with dressing, bathing, and mobility assistance. 
The company’s Full Year 2017 Financials were solid, with reported revenues of $565.5 million, up 18% from FY 2016; and net profit of $61.1 million, up 8%.  The company petitioned the Federal Court of Australia for a ruling related to 2016 changes in fees and charges allowable under the Aged Care Act of 1997.  A recent update states Regis charges do not qualify, and the company is awaiting a formal ruling pending possible appeal.
While the company has no presence in residential aged care, ASX newcomer Zenitas is focusing exclusively on cost-effective healthcare alternatives, including in-home services for seniors.
Given the alarm with which our own federal government looks at the rising cost of healthcare, Zenitas is operating in a sweet-spot that some investors identify as occupying a special niche in the healthcare megatrend – cost control.
The company listed on the ASX in January 2017 following a reverse merger with a business plan and acquisitions in place to penetrate the community-based healthcare sector.  Community based healthcare is recognised as a viable alternative to the higher costs of institutional care. 
The company’s business model targets three sectors:
• Primary Care• Allied Health• Home Care
Prior to issuing its IPO prospectus in mid-November 2016 the company was in the process of acquiring five independent healthcare operations to slot into its three operating sectors.  Following the acquisitions, Zenitas began its quest with 54 community-based healthcare facilities spread across Victoria, New South Wales, Queensland, South Australia and Western Australia.
The acquisitions were made possible by the fragmented nature of the sub-sector, with multiple providers operating independently.  Following the successful acquisitions, the company had two operational primary care centre providers; two allied health centre providers; and one Home care provider.
The company was formed for the expressed purpose of benefiting from a deliberate shift in government policies targeting less costly community-based healthcare providers rather than traditional hospitals. 
Acquisition appears to be a major strategy for Zenitas as the company quickly announced its first post-listing acquisitions of Australia’s largest aged-care podiatry business – Dimple – and NexttCare, a home care provider.  More recently Zenitas acquired a major privately held home care provider in Victoria and New South Wales – Australian Home Care Services (AHCS), and two allied health clinics from provider Beleura Health Solutions.
First, since its listing in January 2017 through October, the Zenitas share price outperformed traditional institutional healthcare rivals Ramsey Healthcare (RHC), Sonic Healthcare (SHL) and Primary Healthcare (PRY). 

Year over year, Zenitas is still outperforming Ramsay.

Second, Zenitas is the only ASX listed group specialising in community-based health services businesses.  The company has a consensus BUY rating, from two analysts and a remarkable EPS (earnings per share) growth forecast over two years.  In its 2017 Financial Report the company posted EPS of $0.008 per share, expected to rise to $0.107 in FY 2018 and $0.154 in FY 2019.

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