Extendicare is still a pass, says Leede Jones Gable

The stock may still be a “Hold” but Leede Jones Gable analyst Douglas W. Loe has a more encouraging view of the company’s ability to keep up its current dividend. That’s the take on Extendicare (Extendicare Stock Quote, Charts, News, Analysts, Financials TSX:EXE), which just released its first quarter numbers, with Loe looking over the results in a Monday update to clients.

Markham, Ontario-based Extendicare, a long-term care, retirement residence and home-care service provider, announced its Q1 2023 financials on May 4, coming in with revenue of $324.7 million compared to $305.7 million a year earlier. The topline broke down into $207.6 million from Long-Term Care, $107.4 million from Home Healthcare and $9.7 million from Managed Services.

Extendicare said the average occupancy of its LTC homes was up 430 bps year-over-year to 95.1 per cent and average daily volume (ADV) of 26,043 was up 6.1 per cent from a year earlier.

“In the first quarter we saw improvement in our financial results in all our operating segments, supported by a decline in COVID-19 rates, continuing growth in home health care volumes and improvement in LTC occupancy levels,” said President and CEO Dr. Michael Guerriere in a press release.

Loe said that after a challenging second half to 2022, EXE showed sequential improvement on almost all of its profitability metrics. Adjusted Funds From Operations (AFFO) were $20.8 million compared to $12.5 million a year ago or $0.23 per diluted share compared to $0.13 per diluted share a year ago. Adjusted EBITDA was $31.0 million compared to $20.2 million for Q1 2022.

“We were encouraged to see FQ123 AFFO dramatically exceed actual dividend payout in the quarter ($20.9 million in FQ123 AFFO versus actual dividend pay-out of $10.2 million; payout ratio of 48.9 per cent), and thus do so for the first time since FQ122,” said Loe.

“In so doing, notwithstanding the impact that the catchup on pandemic-related funding has on the quarter, FQ123 financial data mitigates lingering dividend risk that the trailing nine-month period infused into Extendicare’s operating risk profile. T12M AFFO of $33.7 million is still not quite at trailing 12 months dividend payout of $41.6 million, but we are confident that Extendicare can generate sufficient AFFO and operating cash flow in future periods to mitigate dividend risk even further than FQ123 financial data already have,” he said.

Looking ahead, Loe is forecasting Extendicare to generate full 2023 long-term care revenue of $781.0 million and moving to $773.3 million for 2024. On adjusted EBITDA he is forecasting $89.4 million for 2023 and $87.3 million for 2024.

With his “Hold” rating, Loe also maintained a 12-month target of $7.00, which translated at press time to a projected total return of 10.5 per cent.

“We are maintaining our HOLD rating on EXE solely as a valuation call, while simultaneously maintaining our PT of $7.00 on the stock, and our positive view on the ability of Extendicare to sustain its current annual dividend payout ($0.48/shr) throughout our forecast period,” Loe wrote.