The Estia Health Ltd (ASX: EHE) share price could offer investors a lot of potential returns according to the fund manager Wilson Asset Management. It suggested the ASX share could rise by more than 50%.
What is Estia Health? For readers that havenât heard of it, itâs an aged care operator. At December 2022, it had 72 operational homes, with 6,596 places and over 7,500 employees. It has almost 2,000 places in each of NSW and Victoria, with Queensland and South Australia making up the rest.
The business says it wants to keep growing with a program of capital investment to âincrease capacity, and continually improve asset quality.â
WAMâs optimistic view on the Estia Health share price
Two of WAMâs leading investors were recently featured in a video talking about a few different topics.
Portfolio manager Tobias Yao called out Estia shares as an opportunity.
He said that the company has a âcompetent board and management team nowâ.
Yao noted that the aged care sector has had a âvery tough timeâ over the last few years after the aged care royal commission and also with COVID-19. But, he said that WAM believes âthatâs now behind usâ. Explaining the positive case for the ASX share, he said:
If youâre an efficient operator in the aged care space there are a lot of opportunities from an M & A (mergers and acquisitions) perspective to acquire good assets at very attractive prices and at the same time weâve seen quite a few large takeovers of aged care operating groups and we believe Estia itself is the target of potential acquisitions.
So, we think the intrinsic value is over $3 and currently the risk/reward looks to be very attractive.
If the Estia Health share price were to rise to $3 after a takeover offer, that would represent a potential rise of around 50%.
Recent performance
Estia Health recently made its own acquisition â it bought four residential aged care homes from Premier Health Care Group for $62 million, excluding stamp duty and transaction costs, funded by debt.
In the first quarter of FY23, its âspot occupancyâ on its mature home portfolio of 6,163 places, excluding the Burton expansion, was 92.3% at 31 October 2022. Average occupancy for the quarter was 91.7% for the ASX share compared to 90.6% in the second half of FY22.
The impact of COVID-19 has âcontinued to declineâ during the FY23 first quarter. Total estimated incremental costs associated with prevention and response were $8.9 million for the quarter, compared to $13.4 million in the prior quarter.
Itâs expecting to see the industry benefit from higher occupancy as the impact of COVID-19 lessens and a reduction in new supply intersects with the ageing population. The number of people over 85 is projected to increase by 60% in the next decade.
Estia Health share price snapshot
Over the last month, the aged care company has dropped around 8%.
The post This ‘very attractive’ ASX share could be a takeover target with over 50% upside appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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