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Takeover and staff shortages loom large at CareTech

The social care firm’s co-founders are hoping to take the company private in a period of sector-wide uncertainty
June 16, 2022
  • No half-year dividend with company in offer period
  • Children’s services remains largest contributor to revenue

When the Omicron variant emerged late last year, specialist social care provider CareTech (CTH) noted a problematic uptick in employee absences. To fill the gap, it hired agency staff – which naturally increased its staffing costs and hit its bottom line. By now, this is a familiar story across the wider health and social care sector. The question is whether CareTech has the financial resources and the necessary vision to fully recover from the impact of the pandemic.

The company’s half-year results show a modest year-on-year revenue uplift, although its cash profits were flat and its net debt increased, partly thanks to acquisitions in Germany and the UAE. Revenues for CareTech’s fledgling international arm have subsequently increased by 37 per cent year on year. However, the company’s children’s services division remains by far its most profitable – accounting for around half of its total revenue in the the half year. 

Demand in this area is expected to remain strong, given what CareTech calls a “strong pipeline of referrals” to its services. With 185 homes in its portfolio, the firm is the UK’s single-largest provider of residential care for vulnerable children. It says 77 per cent of its facilities have been rated “good” or “outstanding” by Ofsted. The Times reported that nine of CareTech’s children’s homes had failed inspections by the regulator last year.

Investors should be aware that the company’s co-founders are seeking financing that would allow them to take it private. As a result, it will not pay a half-year dividend to shareholders. There are currently two offers on the table at 750p, but talks with both potential buyers are not progressing quickly. With staff shortages ongoing, and takeover talks making slow progress, the current discount to the offer price reflects the general uncertainty. Sell.

Last IC View:  Hold, 581p, 07 Dec 2021

CARETECH (CTH)   
ORD PRICE:680pMARKET VALUE:£771.2mn
TOUCH:664-680p12-MONTH HIGH:773pLOW: 530p
DIVIDEND YIELD:1.4%PE RATIO:58
NET ASSET VALUE:358p*NET DEBT:99%
Half-year to 31 MarchTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202124342.333.44.60
202224932.211.7nil
% change+3-24-65-
Ex-div:na   
Payment:na   
*Includes intangible assets of £207m, or 183p a share