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Mears makes progress despite care restructure

The housing division has led the group's growth
March 22, 2017

Organic growth has been strong at housing maintenance company Mears (MER), complemented in its care division by the acquisition of Care at Home in 2015. The dominant housing segment increased revenues by 7 per cent to £788m, thanks to a record year for contract bidding in 2015. The care division grew 5 per cent to £153m, thanks in large part to the acquisition. But the higher costs and funding constraints for social care, as well as ongoing restructuring costs, led to the division making an overall £1.2m loss for the year.

IC TIP: Buy at 504.5p

Organic growth has increased the capital needs of the business, and expansion of working capital has led the group to a net debt position of £12.4m, from net cash of £0.8m at the end of 2015. David Miles, chief executive of the group, seems content to let the group's contract wins and acquisitions bed in, saying there were no plans for acquisitions this year or next. At £3.1bn, the order book is down on 2015's record £3.5bn. Revenue visibility for 2017 is also just shy of the target 95 per cent, at 93 per cent.

Analysts at Investec are forecasting normalised profit before tax of £48.2m for 2017, giving normalised diluted EPS of 36.7p (from £40.1m and 30.4p in 2016).

MEARS GROUP (MER)

ORD PRICE:505pMARKET VALUE:£518m
TOUCH:504-508p12-MONTH HIGH:540pLOW: 349p
DIVIDEND YIELD:2.3%PE RATIO:21
NET ASSET VALUE:194p*NET DEBT:6%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201261720.019.68.0
201386621.7-1.28.8
201483929.725.010.0
201588125.920.311.0
201694029.423.511.7
% change+7+14+16+6

Ex-div: 15 Jun

Payment: 6 Jul

*Includes intangible assets of £220m, or 214p a share