Aveo, with ninety retirement complexes in five states, and about 13,000 residents, is Australia’s largest listed provider of aged care.
FKP Property was a diversified property trust which in 2013, after 3 years of a falling share-price, and cessation of distributions, decided to focus on the retirement village component of its portfolio.
To this end it raised $232 million in a 5 for 9 rights issue at $1.30 in October 2013.
The weekly chart below shows the positive market response as investors bought the story of a return to profitability based on the provision of quality retirement living for an ageing population.
That was until the 26/6/17 when a joint investigation by ABC’s Four Corners and Fairfax Media was aired, alleging defects in care, and excessive charges by Aveo complexes.
Aveo, it would seem, tends to target more affluent retirees able to afford their higher than usual charges, who in return mostly appreciate the above average standard of facilities provided.
Legal assessment of Aveo contracts suggests however, that they are unacceptably detailed (over 120 pages in length), difficult to understand, include unnecessarily harsh clauses, and are administered rigorously irrespective of client need. It is understandable that doubling of profit to $120 million in 2016 would be thought to be exploitative of the elderly, but in fact shareholders are likely to lose more capital in the market response than they will receive by way of distributions from this profit.
Technical analysts are wary of putting too much weight on news announcements such as this, but they are drivers of market movement, and need to be monitored.
- The primary trend-line has been broken.
- A head and shoulder pattern has formed suggesting a change in trend.
- Support at the neck of the head and shoulder pattern (at $3) has been penetrated.
- There is an impulsive move lower after an initial gap, which is likely to test support at about $2.32.
From a technical perspective AOG is considered a Sell, but as always readers should seek their broker’s opinion, and take into account other relevant considerations.