This small company is building long-term value in healthcare.
The triple factors of the UK's ageing population, its obsession with property and increases in health spending caused companies specialising in public health infrastructure provision to enjoy something of a bubble in recent years. Not any more.
The recession and steep decline in construction and commercial property values have combined to make such investments distinctly un-fashionable. In so doing, though, they may have created an opportunity for the long term / contrarian investors amongst us.
AIM-listed Primary Care infrastructure specialist Ashley House (LSE: ASH) could well be a case in point. The company manages the construction of medical centres and doctors' surgeries for the NHS. Its portfolio includes projects in NHS Local Improvement Finance Trust (LIFT), Primary Care premises, health parks and clinical services joint ventures.
Roller-coaster
Ashley House made the move to AIM in January 2007, with a placing at 150p to raise cash for expansion. The shares quickly went higher, reaching 189p that month, though it was downhill all the way for two years as the shares went under 70p earlier this year. And they haven't fully partaken of the recent rally, standing at 84p today which values the company at a shade over £40m -- though there was a placing in April.
But companies like Ashley House aren't really de rigueur any more. Big future cuts in public spending are generally anticipated, commercial property and construction are still in the dog-house despite some stabilization, and profits warnings like the one issued last December, seem to confirm investors' worst fears.
Well, maybe. The problem is that this wasn't really a true warning, but a caution against what had been anticipated rapid growth, due to delays. Nevertheless, it hammered the share price, and it's never really recovered. The final results for the year to the end of April, meanwhile, were very upbeat, all things considered. A strong second-half performance enabled the company to increase pre-tax profits 9% to £5.5m for the full year (having suffered a 58% fall in profits in the first half).
Optimism over bad news
Full-year revenues rose £4m to £23.8m due to the acquisition from Babcock & Brown (which went into administration) last year of a controlling interest in seven LIFT franchises -- after the placing at 65p a share to raise £2.3m to pay for them. Meanwhile, the boss reckoned the company would benefit from any future public spending cuts as, no matter what political hue the next government takes, the need to save on health spending means that the primary care infrastructure has to be strengthened to ease the burden on hospitals.
The house broker is forecasting earnings per share of 12.5p this year, rising to 14p next. If this all comes to pass, the shares are trading on a relatively mean forward price-to-earnings ratio of just six. House brokers' forecasts are to be taken with a dose of overly optimistic salt, of course, but given that basic earnings per share came in at over 10p (down from close to 13p due to the increase in the number of shares after the placing and acquisition) the forecasts don't look entirely unfeasible.
On balance
Much of last year's increase in revenue came from management fees earned from AH Medical Properties, a Plus-quoted property company in which Ashley House holds a 7% stake -- though reliance on this area is diminishing rapidly.
Meanwhile, Ashley House's balance sheet reveals net assets not far off the market capitalisation, and net tangible assets of £13.6m. The company paid a final dividend of 4p having waived the interim dividend. If it gets reinstated next year, the shares will be yielding a healthy 7% and look a good long term prospect for the patient (geddit?) investor.
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