Aveo bounces back in FY18 but investors still lack confidence
Written on the 15 August 2018 by David Simmons
Despite Aveo (ASX: AOG) reporting some solid FY18 results and announcing the completion of its five-year transformation project, investors are still wary of the retirement village operator.
A variety of reasons could have led to Aveo's share price not reflecting more recent successes, but Aveo CEO Geoff Grady is choosing to focus on pressing issues in a bid to rectify the situation.
"While we have achieved our objectives, and despite achieving record profit levels, Aveo's share price is currently trading well under net tangible assets (NTA) due to concerns around sustainable sales levels and perceived further industry regulatory risk," says Grady.
While Grady's concerns are valid, investors are more likely put off by the company's bad image than the perceived industry risks, especially considering the company is the largest of its kind in Australia.
It has been just over a year since the company suffered at the hands of an ABC Four Corners investigation and the threats of two class action law suits; two factors that led to the dissipation of the company's share price in the first place.
Aveo quickly references the class action in its FY18 results release, and some seem to have turned a new leaf. Resident satisfaction hit a high of 84 per cent during 2018 following the group's 'transformation program'.
"The wellbeing of our residents remains our highest priority," says Grady.
"The high levels of satisfaction that they express for the retirement communities that we are creating for them especially with innovative healthcare services enabling them to age in their own homes means we are well positioned to evolve to the next stage of our development."
Overall, Aveo recorded an underlying profit after tax of $127.2 million, up 17 per cent on FY17, and a statutory net profit after tax of $365.1 million, up 44 per cent.
The increase in Aveo's underlying profit after tax was primarily driven by the addition of 506 new units and the company's latest community, Newstead, achieving higher than expected development margins.
Looking to the future, the company is concerned about the residential property market slowdown sweeping the east coast, but sale rates are currently steady.
The retirement business is on track to deliver 418 new development units in FY19.
Shares in Aveo Group are up 10.86 per cent to $2.45 per share at 10.30am AEST.
Business News Australia
Author: David Simmons