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CareTech undaunted by difficulties in care homes sector

The care home operator has had another impressive year in spite of pressures on the industry which have crippled some competitors
December 9, 2016

NHS funding cuts, the introduction of the national living wage and pressure to keep private residents' costs down. These issues in the UK care homes space - which have caused immense difficulty for many operators - seem to have passed CareTech (CTH) by. In another exceptional year, the group has reported a 54 per cent rise in adjusted cash profits and 11 per cent improvement in cash inflows. Even when stripping out the high number of exceptional items reported in the 2015 financial year, pre-tax profits were up by a little under a fifth.

IC TIP: Buy at 307p

But it hasn’t been "a walk in the park" according to chief executive Haroon Sheikh. Rather, the group has made the most of its relationships with local authorities to ensure fair fee increases and utilised its "sound financial acumen" - in contrast to poorly-managed peer Cambian (CMBN) - to grow. It raised £30m via a ground rent transaction in February, which helped fund an acquisition. Two acquisitions in the year, alongside more made in 2015, have given an excellent outlook for the coming year. Plus organic growth has provided around 55 new beds.

Broker Panmure Gordon therefore expects adjusted pre-tax profits of £28m for the year to September 2017, giving EPS of 36p (from £26.1m and 38p in FY2016).

CARETECH (CTH)

ORD PRICE:307pMARKET VALUE:£197m
TOUCH:305-308p12-MONTH HIGH:307pLOW: 213p
DIVIDEND YIELD:3.0%PE RATIO:8
NET ASSET VALUE:236p*NET DEBT:103%

Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20121146.412.36.50
201311428.147.57.00
201412312.523.98.00
20151249.413.88.40
201614922.536.29.25
% change+20+139+162+10

Ex-div: 9 Mar

Payment: 8 May

*Includes intangible assets of £87m, or 136p a share