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CareTech ready for organic growth

RESULTS: In recent years, CareTech has been refocusing its efforts onto less capital intensive areas, such as foster care - these solid figures suggest it's a strategy that's paying off
December 5, 2013

Social work and care home group CareTech (CTH) has been reshaping its business towards less a capital intensive business model, with an emphasis on foster care. There were signs in these figures that this transitional period is coming to an end, too. Certainly, reported earnings were distorted by property transactions - but strip out the revaluation effect from homes that CareTech previously leased and underlying pre-tax profit grew by a solid 4.8 per cent in the period to £17.5m.

IC TIP: Buy at 245p

CareTech spent £37.9m buying two property portfolios, but this saved the company £4.4m in annual rental payments - although the acquisitions sent net debt up to £168.5m from last year's £131m. At first glance, top-line growth still looks fairly flat - reflecting pressures on local authority budgets and the disruptive effect from the refurbishment of homes during the year. But executive chairman Farouq Sheikh says this fails to reflect the true picture. "When the effect of refurbishments are stripped out, then like-for-like revenue growth was closer to 3 per cent," reckons Mr Sheikh. He added that the company was now ready to target faster organic growth during the next three years.

Broker Investec Securities expects pre-tax profit for 2014 of £20.6m, giving EPS of 31.7p (from £17.5m and 27.4p in 2013).

CARETECH (CTH)

ORD PRICE:245pMARKET VALUE:£127m
TOUCH:242-248p12-MONTH HIGH:247pLOW: 144p
DIVIDEND YIELD:2.9%PE RATIO:5
NET ASSET VALUE:190p*NET DEBT:171%

Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200983.46.8110.74.70
201089.77.5613.65.50
20111097.4211.76.00
20121146.3712.36.50
201311428.147.57.00
% change-+341+286+8

Ex-div: 12 Mar

Payment: 11 Apr

*Includes intangible assets of £62.1m, or 119p a share