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Mears facing restructuring headwinds

RESULTS: Social housing and care home outsourcer Mears is facing a tough year of restructuring ahead after buying its main competitor, Morrison
March 19, 2013

Social housing and home care outsourcer Mears (MER) has its hands full turning around its acquisition of loss-making social housing competitor Morrison - restructuring costs are forecast to rise to £6m in the year ahead. Strip out £1.9m in restructuring and acquisition costs, and group adjusted pre-tax profit rose 7 per cent in 2012 to £33.6m - at the lower end of market expectations.

IC TIP: Hold at 374p

The social housing division did grow revenue 22 per cent to £504.7m, helped by robust growth in core maintenance contracts, while the order book jumped to £3.8bn - securing 88 per cent of current year revenue. The Morrison acquisition boosted revenues, too, but it also came with a £2.3m operating loss - dragging Mears' reported group operating margin down from 5.7 per cent to 4.6 per cent. Meanwhile, the mechanical and engineering business saw last year's £1.3m profit turned into a £1.6m loss amidst tough trading conditions - management plans to either sell the unit or turn it around within a year. The care business managed a modest 4 per cent growth in revenue (1 per cent on an organic basis) to £112.6m - although the operating margin there did rise from 8 per cent to 8.3 per cent.

Housebroker Canaccord Genuity expects adjusted pre-tax profit of £35m for 2013, giving EPS of 28p (26.1p in 2012).

MEARS (MER)

ORD PRICE:374pMARKET VALUE:£344m
TOUCH:373.8-374.3p12-MONTH HIGH:383pLOW: 246p
DIVIDEND YIELD:2.1%PE RATIO:17
NET ASSET VALUE:184p*NET DEBT:7%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200842016.617.44.75
200947018.418.85.70
201052416.417.76.75
201158920.619.97.50
201268020.821.98.00
% change+15+1+10+7

Ex-div: 12 Jun

Payment: 2 Jul

*Includes intangible assets of £164m, or 178p a share