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Synergy Health reaps US rewards

RESULTS: Well-timed acquisitions in the US are helping Synergy Health overcome a sluggish home market
November 13, 2012

Synergy Health's results showed the healthcare services company benefiting from growth outside of its home markets after a concerted round of acquisitions and capital investment. Synergy is likely to continue diversifying its operations as a clear split is emerging between its established markets like the UK and the Netherlands, where growth has been sluggish, and new areas such the US, Africa and Asia which are seeing a rapid expansion in hospital services.

IC TIP: Hold at 940p

Underlying sales growth in Asia, Africa and the Americas increased by 18.7 per cent and 10.2 per cent to £9.6m and £22.1m, respectively. The acquisition of SRI in the summer for £25.5m increased the company's exposure to the US hospital market and contributed most to the rise, while a reorganised Asian division won new contracts in Chengdu and Beijing that will start next year.

It was the mixed picture in Europe and the Middle East which clouded the results, with the Dutch linen business being squeezed by tough competition - divisional revenues were down 1.6 per cent on a constant currency basis at £60.7m. Management believes the price deflation will be long term and has cut costs in order to defend profit margins. The other core market in the UK was hit by industrial action and a series of public holidays, which limited underlying sales growth to 2.2 per cent at £79.2m.

Broker Investec forecasts 2013 pre-tax profits of £49.9m, giving EPS of 64.9p (from £43.4m and 59.2p in 2012).

SYNERGY HEALTH (SYR)

ORD PRICE:940pMARKET VALUE:£548m
TOUCH:933-940p12-MONTH HIGH:973pLOW: 758p
DIVIDEND YIELD:2.0%PE RATIO:20
NET ASSET VALUE:539p*NET DEBT:57%

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201115516.623.76.82
201217218.225.57.90
% change+10+10+8+16

Ex-div: 21 Nov

Payment: 14 Dec

*Includes intangible assets of £268m, or 460p a share