Shares in specialist social care company CareTech Holdings (CTH:AIM) gained 1.9% to 621.2p after reporting a strong first half with a surge in revenue and profit.

First half revenues to 31 March 2021 grew 16.5% to £243 million, driven by organic means and the acquisition of a majority holding in Smartbox Assistive Technology Limited last October. Underlying pre-tax profit increased 31.6% to £33.6 million.

Smartbox is a market-leading creator of software and hardware that helps disabled people without speech to have a voice and live more independently. The company said the acquisition represented an ‘important milestone’ towards building a digital technology division.

Also contributing to revenue growth was the transfer of seven services previously operated by the Huntercombe Group which added highly specialised facilities for the treatment of adults with complex learning disabilities, autism and mental health diagnoses.

STRONG CASH FLOW

Operating profit growth of 31.6% was ahead of revenue growth, reflecting the benefits of operating leverage, (a higher percentage of revenues was turned into profit).

The company converted virtually all EBITDA (earnings before interest, taxes, depreciation, and amortisation) of £49.3 million into cash, which allowed the firm to reduce net debt by 8.5% to £263.1 million.

Net debt to adjusted EBITDA dropped to 2.8 times while the dividend was increased by 15% to 4.6p per share.

Numis analyst Kane Slutzkin said the dividend increase signaled a confident outlook and commented, ‘with full year numbers in mind, we see upside risk to consensus FY21/22 revenue estimates, though partly offset by lower near-term Adult service margins.’

HIDDEN VALUE

Slutzkin noted Caretech’s significant freehold estate which was last valued at £774 million in 2018 and is due to be revalued in August.

He said: ‘With leverage now declining to below 3x, it may be time for investors to take greater notice of the freehold, which may represent ‘hidden’ value and also provides flexibility to reconfigure and optimise properties to meet local needs.’

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Issue Date: 17 Jun 2021