Good behaviour deserves to be rewarded and Cambian Group (LSE: CMBN) has certainly been handing out the goodies to loyal investors lately. Its share price has risen 121% over the last 12 months as the market bought into its promising growth story. That would have turned a £5,000 investment into more than £11,000 over the last year, despite a slight dip after today’s interim results.
Cambian era
The market response to the group’s unaudited results for the six months ended 30 June has been lukewarm, with the share price down around 3.42% at time of writing. The children’s behavioural services and specialist education business reported solid enough revenue growth of 6% to £100.6m, as it generated extra fees from its new strategy of taking on higher severity cases.
However, adjusted EBITDA of £8.4m rose only slightly from £8.3m in the first half of 2016. This reflects the loss of temporarily stranded assets following the sale of its adult services business, and temporarily higher overheads. Markets are clearly underwhelmed, even though the group also reported a strong balance sheet with net cash of £122.3m after repaying all bank debt at the end of 2016, funded by the adult services disposal.
Child-centred
The sale also allowed the group to return £50m to shareholders in the shape of a special dividend on 15 September. Management previously scrapped its dividend because of concerns over the group’s financial performance but this has now been reinstated with an interim payment of 0.14p per share. The return of the dividend had already been flagged up in April. A cost reduction programme is also underway.
CEO Saleem Asaria said the results were broadly in line with expectations, as the business positions itself as a specialist provider of children’s services, and concentrates on “high severity” cases. The return of the dividend reflects a strong balance sheet and confidence in the medium-term outlook.
Good behaviour
Investors are disappointed at the lack of any positive surprises, having to make do with “a stable performance during a period of transition”. Cambian has emerged as a more focused operation, with approximately 88,000 children now falling into its core target market, as it aims to become the highest quality provider of specialist education and behavioural health services for children.
It has a market cap of £377m and is rumoured to be pursuing bolt-on acquisitions to grow the business faster and build on its market-leading status. Today’s results show a company moving in the right direction but it needs to deliver a bit more excitement to tempt investors to buy a stock that is now trading at a whopping forecast valuation of 44 times earnings.
A bit pricey
That’s what can happen if your share price more than doubles in a year. Its heady valuation also prices-in plenty of future growth although things do look promising on that front, with City analysts forecasting full-year earnings per share growth of 88% in 2017 and another 36% in 2018. Definitely one to watch, although I would struggle to justify buying the stock at today’s price.
