CareTech looks to international expansion

Social care provider CareTech (CTH) saw a limited impact from Covid-19 in the year to 30 September. All of the group’s sites remained open, aided by the fact that less than 3 per cent of its users are considered to be ‘high risk’ by the NHS. While it did incur £3.4m in pandemic-related costs, more than three-quarters of this was offset by additional funding from local authorities.

Like-for-like underlying cash profits (Ebitda) rose by 14 per cent to £84m as the 2018 acquisition of care and education group Cambian continued to propel growth in children’s services. CareTech says it has improved the performance of that business, with its overall cash profit margin increasing by 1 percentage point to 19.6 per cent.

Further momentum could come from a foray into international markets. It spent £7.4m in February to purchase a majority stake in the largest provider of outpatient mental healthcare services in the United Arab Emirates (UAE). CareTech views this as a gateway to more investments in the region.

It should also benefit from consolidation at home after taking over seven services from fellow private healthcare provider The Huntercombe Group last month. There was no capital outlay involved and the addition of 125 beds is expected to immediately boost earnings.

Net debt has ticked down by 8 per cent to £269m, equivalent to 3.1 times cash profits. The group is aiming for this multiple to be less than 3. Having increased its interim dividend, CareTech is handing shareholders a higher final payout as well.

In the long-term, the group will benefit from rising demand for specialist care and increased outsourcing to the private sector. But we’d like to see more progress from the UAE operations following some margin dilution in adult care services. Hold. 

Last IC View: Hold, 398p, 18 Jun 2020