CareTech Holdings

Expanding margins and its share of a fragmented and defensive market, specialist social care provider CareTech is a growth company that ticks all the boxes for investors.

Results for the year to September from CareTech, which provides social care services to people with learning difficulties and mental health needs, revealed an impressive 45% pre-tax profits surge to £15.3m. Revenues rose by 23% to £83.4m and the strongly cash generative company upped the total dividend 25% to 4.7p.

Capacity was increased by a further 122 beds last year – 97 beds added organically and 25 by way of acquisition. Now with 1,430 beds, occupancy rates within CareTech’s established services are said to be running at 93%, demonstrating the longevity and visibility of the group's income stream, virtually all of which comes from local authority social services departments.

Now, although the public purse is feeling the squeeze, CareTech’s earnings should remain largely insulated, since it provides long-term care for society's most vulnerable members. Its services are non-discretionary, and budget pressures could even play into its hands by driving demand from local authorities for only the most cost effective services.

Well placed to grow organically and via acquisitions in a £6.7bn target market, CareTech is forecast to lift profits from £15.3m to £18.1m in the year to next September, ahead of £20.2m for 2011, with earnings of 31.4p and 34.9p pencilled in.

Based on those estimates, the income-yielding shares, backed by Growth Company Investor in July at 303.5p, are trading on prospective multiples of 13.8 and 12.4, an undemanding rating for a proven venture whose balance sheet is backed by some £206m of freehold property assets. Keep buying.