A decent set of results from care home owner Cambian (CMBN) will have come as a relief to CareTech (CTH) investors. The latter is in the process of merging with its larger peer via a reverse takeover worth £372m. If it gains approval, the company will be the UK’s second-largest social care operator, with 220 Cambian-branded and 215 CareTech residential facilities.
Operationally this seems like a sensible merger. Management expects to extract roughly £6m of costs within the next three years by rationalising the head office, IT, board and some staff, while CareTech has a solid track record of growth via sensible acquisitions. It is also reassuring to see Cambian emerging from a period of overspending and underdelivering (which culminated in the sale of its adult services division in late 2016) as becoming a well disciplined operator. During the first half, adjusted cash profit margins recovered to 11.2 per cent, compared with 8.3 per cent this time last year. True, that compares with 22 per cent cash profit margins at CareTech, but at least Cambian is now in recovery mode following several years of margin erosion. The group swung from a pre-tax loss of £1.2m in the first half of 2017 to a pre-tax profit of £1.6m.
Cambian has also managed to increase average fees by focusing on higher-severity services. That seems like a prudent strategy during a time when social health operators are struggling to negotiate higher fees from local governments. Its would-be acquirer has dealt with those challenges well, consistently negotiating higher fees to offset rising staff costs.
