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CareTech looks to build Cambian margins

The specialist social care provider is building scale – but it's not without risk
June 20, 2019

A 58 per cent increase in CareTech's (CTH) shareholder funds, a near doubling of intangible assets, and a 71 per cent hike in half-year cash profits to £33.3m reflect the upscaling of operations following the takeover of sector rival Cambian. The group now provides specialist social care for 4,500 adults and children with a wide range of specialist needs in more than 550 residential facilities and schools around the UK. The integration process kicked off in February and the group remains on track to deliver £3m in cost synergies in the first full-year following completion.

IC TIP: Hold at 375p

Progress on the cost front is always to be welcomed, but it takes on a new urgency given that the gross margin fell by 340 basis points to 31.6 per cent. However, management notes that the cash (ebitda) margin for Cambian increased significantly and there is more to come if, as envisaged, occupancy rates increase on the back of better staff retention and improved quality ratings.

Panmure Gordon expects adjusted pre-tax profits of £46.7m for the September 2019 year-end, giving EPS of 35.1p, rising to £56.2m and 42.2p in FY2020.

CARETECH (CTH)   
ORD PRICE:375pMARKET VALUE:£409m
TOUCH:374-377p12-MONTH HIGH:410pLOW: 310p
DIVIDEND YIELD:3%PE RATIO:33
NET ASSET VALUE:301p*NET DEBT:89%
Half-year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201887.68.468.623.50
20191936.855.773.75
% change+120-19-33+7
Ex-div:24 Oct   
Payment:21 Nov   
*Includes intangible assets of £163m, or 150p a share