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Housing lifts Mears as management takes care of business

The housing and care services provider posted solid top-line growth despite pruning its client base
August 16, 2016

Brisk demand for housing services fuelled solid top-line growth at Mears (MER) in the first half of 2016. But management's downsizing of the care division, combined with the costs of integrating its Care at Home acquisition and tackling new contracts, drove adjusted operating profit down 5 per cent to £18.2m.

IC TIP: Buy at 412p

Mears works with local authorities, social landlords and the NHS to provide housing maintenance and repair services to around 15 per cent of the UK's social housing, as well as personal care to more than 30,000 people every day. Organic sales rose 6 per cent in the main housing division, as strong demand translated into £259m in new contracts. The star performer was the housing management subdivision, which benefited from a key worker housing contract valued at around £190m over three years. Maintenance revenue also rose as Mears embarked on a five-year, £250m joint venture spanning nearly 11,500 homes in Milton Keynes.

A tough market backdrop and higher staff costs weighed on profit in the care division. Management withdrew from 15 contracts in favour of better-priced work, pushing charge rates up to about 6.6 per cent. But this pruning also prompted Peel Hunt analysts to slash profit forecasts by about a tenth. They now expect adjusted pre-tax profit of £41m this financial year, giving EPS of 31.5p (from £36.8m and 27.9p in 2015).

 

MEARS (MER)
ORD PRICE:412pMARKET VALUE:£ 423m
TOUCH:412-418p12-MONTH HIGH:475pLOW: 349p
DIVIDEND YIELD:2.7%PE RATIO:22
NET ASSET VALUE:191p*NET DEBT:7%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201543014.711.33.10
201646612.710.13.30
% change+8-13-11+6

Ex-div: 13 Oct

Payment: 1 Nov

*Includes intangible assets of £223m, or 218p a share