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CareTech looking forward to sweating Cambian's "sub-optimised assets"

"With the demand for fixed income from pension funds, we are looking in the short term to undertake another ground rent transaction for approximately £35mln, to lock in very attractive long-term rates," Caretech said

Kid having fun with paint
Caretech recently acquired Cambian, which has a specific focus on children with challenging behaviours

CareTech Holdings PLC (LON:CTH), a provider of specialist social care services, traded in line with expectations in the fiscal year just ended.

The market has pencilled in figures of £180mln and £43.7mln for revenues and underlying earnings (EBITDA) respectively in respect of the year to the end of September.

READ: Liberum initiates CareTech at ‘buy’

Net capacity in residential and supported living at the year-end was 2,622 places, up from 2,534 places a year earlier, representing a net increase in capacity of 88 residential and supported living places.

Occupancy levels in the mature estate were unchanged year-on-year at 93% at the end of September; the blended occupancy, which includes newly opened services, is roughly 86% - also unchanged year-on-year.

Staff turnover during the year rose to 22% from 21% the year before but remained below the industry average, Caretech said.

Annual fee rate negotiations with local authorities have again led to a positive outcome during the year, the company said.

At the end of September, net debt stood at £147.2mln, little changed from £147mln a year earlier.

“We have continued our focus on the quality of care, on staff development and on reconfiguring services to meet the requirements of care commissioners. This focus has underpinned our organic growth during the year, whilst we also pursued our acquisition strategy,” said Farouq Sheikh, Caretech’s executive chairman.

Acquisition

The company completed the acquisition of the Cambian Group last week.

"CareTech now comprises two trading divisions, the CareTech Division and the Cambian Division, enabling the group to provide a broader service offering to care commissioners with increased geographic reach.

"Our vision is for the enlarged group to be a leading, nationwide and integrated provider of social care pathways in the UK to children and adults, with continued growth and care excellence. We look forward to the future with confidence," he concluded.

Liberum reiterated its ‘buy’ recommendation after what it called a “positive trading update”.

“Management confirmed that post-deal, Pro-forma leverage stands at 4.3x and it expects this to fall to under 4x in the short term. In fact, it has stated that it intends to execute a ground rent transaction which could raise £35mln of cash and by our estimates, this would take leverage to 3.9x on its own,” the broker noted.

“CareTech management continues to deliver on quality, occupancy and margins which supports our thesis that it can create significant value from the sub-optimised Cambian assets,” it added.

Quick facts: CareTech Holdings

Price: 458 GBX

AIM:CTH
Market: AIM
Market Cap: £518.34 m
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