Resilient Business with Lucrative dividend-yield: Extendicare Inc.(TSX: EXE) operates long-term care facilities across Canada, operating under the Extendicare, Esprit Lifestyle, ParaMed, Extendicare Assist, and SGP Purchasing Partner Network brands. The company has a total network of 122 long-term care homes and retirement communities while provides services to ~71,600 senior residents across Canada. 

The company announced a monthly cash dividend of CAD 0.04 per share, which remained unchanged from the previous month, payable on May 15, 2020. Meanwhile, the company reported a dividend payout ratio of ~81%, higher than the previous financial period of ~73%. The company will announce its first quarter FY20 results on May 13, 2020.

FY19 Financial Highlights: For the period ended December 31, 2020, Extendicare reported total revenue of CAD 1,131.95 million, reflecting a marginal growth of 1.1% on y-o-y basis. The increase was primarily added by growth from both long-term care segment and retirement living segment, partially offset by a decline in home health care segment. Operating expense increased marginally, which impacted the company’s net operating income. Net operating income was CAD 133.45 million in FY19, as compared to 133.98 million in FY18. Meanwhile, net operating margin fell 20 basis points to 11.8%. The company reported adjusted EBITDA of CAD 91.11 million, lower than CAD 94.24 million in FY18 due to a slack in net operating income coupled with a significant rise in administrative costs.  Earnings from continuing operations grew considerably at CAD 17.051 million, as compared to CAD 8.08, thanks to a slump in other expenses.

FY19 Income Statement Highlight (Source: Company Reports)

Stock Recommendation: The stock of EXE slipped ~17% in the last one year and currently trading at CAD 6.64 with a market capitalization of CAD 592.50 million on 24 April 2020 market close. At the current market price, the stock offers an attractive dividend yield of ~7.23%. The company’s business is defensive and remains immune to the economic cycles. Extendicare provides retirement living and home health care services and maintains an impressive average occupancy rate. The company is about to complete its ParaMed operations (high-margin services) and exited from its lower margin B.C. market, which is expected to improve its profitability in the coming days. Further, the company has expanded its retirement living capacity and intends to benefit from increasing senior populations. The stock is trading at a forward EV/Sales multiple 0.9x as compared to the industry (healthcare providers & services) average of 1.3x. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 6.64, as on April 24, 2020.

EXE Daily Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.