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CareTech on brink of change

The care provider has just completed its acquisition of close rival Cambian
December 7, 2018

Take a good look, because CareTech (CTH) numbers won’t look like this again. That’s not to warn investors off – it’s just that the group’s impending takeover of close care home rival Cambian has since completed post period-end. While the two brands will continue to run independently, there will be “no material change” to the number of operational sites, meaning the combined business will have a national presence spanning 450 homes and schools, and hopefully helping 4,500 vulnerable young people and adults.

IC TIP: Buy at 345p

While CareTech has only, in effect, purchased Cambian’s child services business, it fully intends to keep running adult services of its own – a market it’s been involved in for 25 years. Although adult services will make up a lower proportion of group sales hereafter, finance director Michael Hill – who sadly passed away since we spoke to him last week – said there’s still plenty of scope to grow that part of the business, either organically or via acquisition. Geographically speaking, it’s likely that the most attractive opportunities would lie in Wales and Scotland.

House broker WH Ireland expects pre-tax profits of £44.5m for the year ending September 2019, giving EPS of 34.1p, compared with £32.9m and 35.1p in FY2018.

CARETECH (CTH)   
ORD PRICE:345pMARKET VALUE:£376m
TOUCH:345-348p12-MONTH HIGH:440pLOW: 340p
DIVIDEND YIELD:3.2%PE RATIO:25
NET ASSET VALUE:191p*NET DEBT:71%
Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201412312.523.98.0
20151249.413.88.4
201614922.536.29.3
201716616.825.59.9
201818615.414.111.0
% change+12-8-45+11
Ex-div:7 Mar   
Payment:8 May   
*Includes intangible assets of £83.8m, or 77p a share