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Cambian's shares in intensive care after profit warning

Behavioural healthcare provider Cambian saw its share price take a further dive after failing to hit an already revised profits target
February 9, 2016

An inability to manage costs has forced behavioural health company Cambian (CMBN) to issue its second profit warning in less than four months with a major impact on its shares.

65p

The stock, which only floated in April 2014, is down nearly 48 per cent after it reported adjusted cash profits of £46m - below the minimum £49m it claimed it would hit in its October profits revision statement.

Management said its occupancy rate increased by 260 beds while revenues and wages had been broadly in line with expectations. But it acknowledged "due to weaknesses in our cost management processes" it took longer to identify and manage down its outgoings. The company said it had implemented strategies to improve this, including slashing capital expenditure to £20m in 2016 and hiring auditor PricewaterhouseCoopers to conduct a review of its supplier management systems.

The performance may well hit sentiment in a sector which is supposed to be a beneficiary of the increasing trend of outsourcing care to the private sector. NHS outsourcing has helped to increase opportunities for healthcare providers in the UK, and US investors have started to show interest in the £16bn mental health market. Not only this, but the NHS budget is one of the few areas to be protected from chancellor George Osborne's cuts, meaning it should be easier to operate in this space than in other sectors where government cuts are having an impact.

However, there was some good news from the sector on Tuesday after Aim-traded healthcare provider Circle (CIRC) announced a very positive trading update, which caused its shares to rocket 30 per cent.

The company grabbed the headlines earlier in the year when it stepped back from an NHS contract for the running of Hinchingbrooke Hospital, after racking up £5m of losses in three years. Despite these problems the group has reported a 15 per cent rise in revenue and 8 per cent increase patient numbers.

Circle seems to be in a good position to take advantage of the expanding market, despite its historic problems with the running of Hinchingbrooke Hospital. But brokers at Investec remain sceptical on Cambian citing concern about management's "lack of visibility into future costs" and fear guidance may "slip further" once a new chief financial officer is appointed. Cambian had announced in November that incumbent Andrew Griffith would step down from the role in March this year.

*This story was amended on 10 February to include the word 'adjusted' in relation to the profit figures quoted.