Conference call was very upbeat. Will post highlights once the transcript is out.
the most intriguing part of the EXE story is the move to asset light and more high margin managed services. This is freeing up capital for share buybacks and opportunistic/strategic moves, but it also improves the metrics that investors should care most about.
return on equity is a function of asset turnover times net profit margin. What are now seeing is EXE asset turnover starting to creep up , as is profitability. This makes EXE a better business than it was pre Covid. You are slowly starting to see the changes in the metrics. In addition, the liquidity picture is excellent, helped by the axiom partnership. ROE for EXE should continue to rise, which argues for a higher valuation. The leverage picture also looks benign.
the other source of luck is the timing of the Revera announcement. Revera is one of the largest owner operators of LTC facilities, but it is owned by PSP, a cdn govt pension fund. Due to the negative press of the LTC sector during Covid, PSP was pressured to divest Revera. In August 2023, Revera announced that they would hold onto to the asset but source out the managing of the facilities to third parties, with Exe being one of these. As Revera was negotiating from a position of weakness, it is my understanding that EXE and others were able to garner good terms.
Backlog for LTC beds is 46,000 in Ontario alone, the provincial govt is expected to both provide retroactive funding and go forward funding for LTC. This will provide a margin bump to LTC and EXE said on the call they fully expect LTC margins to get back to pre Covid levels.
secular tailwinds, higher roe business due to asset light strategy, scooping up management contracts which broadens their procurement economies of scale and investors still haven't fully bought into EXE due to their choppy earnings performance in the past.
stocks that climb the wall of worry can go farther than expected as perceptions change. I think EXe is one of those.
GLTA