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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

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