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On the same day that Gordon Brown said the care system in England could face a £6bn shortfall within 20 years, shares in Southern Cross Healthcare jumped 10 per cent on fresh signs that the nursing home group is capitalising on the latent demand in this market.
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Investors were cheered by news that of the 85 per cent of its 37,500 beds where fee uplifts have been agreed, on average there was a 5 per cent rise. Chief executive William Colvin says the fee increases are being supported by 4 per cent rises in council tax.
Even after the post-results share price rise, Southern Cross shares are down almost 27 per cent in the past 12 months due to fears of lower fees from public authorities and concerns about the impact of the credit crunch on its sale-and-leaseback business model (it sells the freeholds of nursing homes to concentrate on care).
However, the company believes it is in a solid financial position and points out that net debt stands at £47m if you exclude £77m of loans relating to acquired property that the group plans to sell on while retaining operating leases. Southern Cross has received offers for about £50m worth of property, Mr Colvin adds, but deals have not yet been announced.
| SOUTHERN CROSS (SCHE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 397p | MARKET VALUE: | £ 739.1m | |
| TOUCH: | 396-397p | 12-MONTH HIGH: | 635p | LOW: 317p |
| DIVIDEND YIELD: | 1.5% | PE RATIO: | NA | |
| NET ASSET VALUE: | 69p* | NET DEBT: | 95% | |
| Half-year to 30 Mar | Turnover (£m) | Pretax profit (£m) | Earnings per share (p) | Net div per share (p) |
|---|---|---|---|---|
| 2006 | 336 | -0.60 | 0.43 | 2.50 |
| 2007 | 431 | -8.60 | -3.34 | 3.75 |
| % change | +28 | +50 | ||
Ex-div:21 May Payment:20 Jun * Includes intangible assets £211m or 112p a share |
||||
Click here for a guide to the terms used in IC results tables.
Don't worry about the half-year loss, either; Southern Cross makes 70 per cent of its profit in the second half, and broker UBS expects 2008 EPS of 25.4p (2007: 19.1p), rising to 30.6 the following year.
Southern Cross shares are priced at 13 times expected earnings, which looks a good price for the biggest operator in a growing industry. Buy.
Previous IC View: Good value, 540p, 2 Jan 2008
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
