Aged-care provider Estia Health has been hit with a class action that alleges it breached its continuous disclosure obligations and engaged in misleading or deceptive conduct.
The suit, filed on Monday in the Federal Court by law firm Phi Finney McDonald, seeks to claim losses suffered by shareholders that acquired an interest in Estia securities between August 12, 2015 and October 6, 2016.
“The applicants allege that due to (what was then) the new and untested operating structure, Estia was unable to reliably estimate its future financial performance,” Tim Finney, director of Phi Finney McDonald, said.
“The claim seeks to hold Estia accountable for conduct which caused its securities to trade at an artificially inflated price.” Estia enjoyed investor interest after it set an ambitious growth strategy in 2015 with the aim of operating 10,000 residential aged-care beds by the end of June 30, 2020. The strategy was short-lived, though, and the company’s share price slid more than 50 per cent in 2016 on concerns about the viability of its aggressive growth strategy.
The share price volatility spiked in August 2016 on the back of poor financial results when the company also revealed it had to revise the way it provided future financial forecasts. Two days after its 2016 results were reported, Estia’s founder, Peter Arvanitis, quit and dumped his entire stake, which was worth $55 million at the time.
The former chief executive, Paul Gregersen, quit two weeks after Mr Arvanitis following investor pressure based on the disappointing financial results.
On the days following the aged-care provider’s 2016 results, its share price fell by 29 per cent. Then, on October 6, 2016, when Estia downgraded its fiscal 2017 guidance, its shares fell 15 per cent on the following days.
Phi Finney McDonald outlined yesterday that Estia had also admitted it had poorly handled the integration of Kennedy Health Care — acquired in December 2015 as part of its growth strategy — during the 2016 fiscal year, which in turn had affected its 2017 fiscal year performance.
“Estia misleadingly assured the market its growth strategy and the integration of the recently acquired facilities was ‘on track’,” Mr Finney said. “However, Estia failed to advise the market it had changed its operating structure to a new and untested system and management structure, which was a departure from the established model.” Shares in Estia closed 5.7 per cent lower yesterday at $2.61.Estia said it would defend the proceeding. “Estia is not in a position to state whether the proceeding is likely to have a material impact on its financial position or performance,” it said.