Panmure reiterated its BUY recommendation and raised its target price to 470p

Companies: CareTech

CareTech has secured Adult Learning Disabilities service Selborne for nearly £17m, it confirmed on Monday. The company had a turnover of £13.3m last year with an adj. EBITDA of £2.4m in the 12 months to December.

The social care provider also reported in-line results, with like for like revenue growth of 4.2%. 2.6% EBITDA growth, and 10.9% adj. EPS growth. At the first half, net cash was down 21% to £122.5m, including the £37m that it raised in March.

Panmure Gordon reiterated its BUY recommendation and raised its target price to 470p, saying the move would add around £2.4m to EBITDA and was "geographically complimentary". 

"CareTech has acquired Selborne Care for £16.9m, 7x 2016m historic EBITDA (circa 6.5x current year), broadly in line with CareTech’s targeted acquisition price range... Selborne has 8 freehold sites with 57 residential beds, and also provides supported living services (to 30 patients). The company is complimentary to CareTech’s current portfolio adding increased coverage along the M4 corridor from the Midlands to the South West."

Panmure added that the deal would see CareTech acquire five new customers through Selborne and offered the potential for expansion of services. 

Selborne provides community outreach services as well, which is not currently applied elsewhere in the group which Panmure says could be rolled out if "additive". 

As CareTech consolidates centralised functions like HR and finance, it should improve margins over the next 12-18 months. 

CEO of Selborne Mike Stratford said his team had enjoyed developing Selborne since 2006 as he thanked the staff, adding that he was delighted to be handing over to CareTech:

"We are delighted to be handing over to CareTech who we believe share our commitment to customer focused, quality care and support services.''

CEO of CareTech Farouq Sheikh said Selborne was a high-quality business with a strong reputation in high acuity adult care, with good growth prospects.

The information contained within this post is based on personal experience and opinion and should not be considered as a recommendation to trade nor financial advice.