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CareTech Holdings: share price on a roll as DBAY submits competing offer

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Shares in CareTech Holdings (LSE:CTH) are on a roll at the moment as a bidding war for the company seems to be shaping up. DBAY Advisors confirmed this morning it had submitted an indicative proposal for an all cash offer for CareTech of 750p per share.

This follows on from last week’s news that Sheikh Holdings Corp had submitted an offer for CareTech of 725p per share. Shares in CareTech were trading at 745p at time of writing, having risen from around 540p at the end of January. Sheikh Holdings – controlled by Haroon and Farouq Sheikh, the co-founders of CareTech, made an initial cash offer for the company of 710p per share on 22 March. They are leading a consortium that includes Belgravia Investments and Kensington Capital.

Why the interest in CareTech Holdings?

CareTech works in the social care and healthcare market in the UK. It focuses on areas like care and residential services for adults with learning disabilities, individuals recovering from mental health disorders, adults with autistic spectrum disorder, those with one or more physical impairment and adults with acquired brain injury.

The company also has children’s care services division which provides assessment, residential care and education for young people with challenging behaviors, and those with behavioral and emotional disorders.

How does CareTech Holdings measure up?

The stock is starting to look more fairly priced at these levels: it has a PE ratio of 13.6x on a 12 month forecast rolling basis. Shares have broken their 12 month high and are also trading at an ATH at the moment, Forecast earnings per share growth is a hefty 97.1% and we are seeing a lot of bullish activity from the institutional end of the spectrum, with a number of bigger fund managers  buying shares in the last week alone.

What has likely interested prospective buyers like DBAY Advisors is the steady growth in total revenue CareTech has been experiencing year on year. This includes the pandemic period when CareTech’s revenues did not break stride over 2020-21. The company saw £430m in revenue in 2020 and beat that with £489m in 2021. Estimated revenues for 2022 are £531m. The dividend yield seems to be heading downwards however.

With income and revenues trending up, EPS is heading downwards, and as already mentioned, the bidding war is starting to make CareTech look more fairly priced. We have four  brokers currently rating the company at either a buy or a strong buy. Consensus analysts’ price target is 703p, and CareTech is trading well above that now.


Is CareTech Holdings looking over-priced now?

From a trading perspective, CareTech is now looking over-priced. Investors may see some further short term gains off this stock if the bidders are tempted to raise their offers towards the £8 level. Would the company be worth this premium though?

We think it might.  Healthcare stocks are a good store of value in periods of market volatility and inflation. Sadly human beings still fall ill and require treatment, regardless of the economic circumstances. CareTech has clearly demonstrated to potential buyers its ability to make money come rain or shine. We are impressed by its performance during 2020-21. If anything this means CareTech should be able to continue to perform during the current tough environment.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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