Mears (MER) may not have quite hit analysts’ forecasts for the full year to 31 December 2016 but chief executive officer, David Miles, remains ‘very happy’ with the results.
The social housing and care firm recorded revenues of £940.1m, a 7% rise year-on-year, and also saw pre-tax profit increase 9% to £40.1m.
The majority of Mears’ business comes from its social housing arm, although it is also the largest provider of care in the UK.
The firm featured in BBC One’s Panorama programme on Monday evening (20 March), which highlighted the desperate state of the care system in the UK. It was unable to provide Liverpool with its services due to the city’s lack of resources. Miles says he has no desire to chase ‘dark contracts’ and accepts the industry was fairly represented by the BBC.
Dark contracts is the term used in the industry when care staff are poorly trained and paid, and sometimes result in the mistreatment of clients.
Miles is frank when it comes to his business, describing the provision of social care and housing as ‘a double-edged sword’. With an ageing demographic, care is a potential growth industry although the issue comes from funding.
Affordable housing is also needed as more people are frozen out of the property market, so there’s continued demand here as well.
Investec says that the results are ‘slightly below our consensus estimates’ but attributes this to higher levels of mobilisation costs within housing, as well as restructuring costs in its care division.
But Miles remains ‘cautiously optimistic’ and is pleased with the organic growth of the business. Although a profit margin of between 5% to 6% might seem low compared to other industries, within the sector Miles says it is double the norm.
While analysts such as Peel Hunt and Liberium deem Mears a ‘buy’ stock, its business can be affected by many factors. For instance, with bond yields still low despite hints of a reversal, pension funds are struggling for income from these assets.
With funding needed for social care and many pension funds in deficit, this could be an issue. But at 508p (around 25% higher than last year), Mears' target market and virtually debt free (£2m of net debt) balance sheet, it's not hard to see why many investors will be happy to tuck the stock away as part of a wider share portfolio.
