UK shares: should I buy CareTech Holding following this news?

The CareTech Holding share price has fallen despite the release of robust first-half results. Should I buy this UK healthcare share for my portfolio?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The CareTech Holding (LSE: CTH) share price has slipped on Thursday following the release of the company’s half-year financials. 

Over the past 12 months, the CareTech share price is up 44%. But the AIM-listed company has reversed 1% today, to 603p per share, and away from Wednesday’s 14-year closing high of 610p. I think this mild retracement reflects light bouts of profit-taking rather than investor disappointment at the latest numbers.

Sales and profits power higher

In its interim report, CareTech said that revenues soared 16.5% during the six months to March, to £243m. This helped push underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) 19.1% higher year-on-year to £49.4m.

The UK healthcare share — which provides residential care for children, young people, and adults with special requirements — said that organic sales rose during the first half. It added that the transfer of adult specialist services sites from The Huntercombe Group, constructive fee negotiations, and the positive impact of Smartbox Assistive Technology also contributed to the year-on-year increase.

CareTech acquired Smartbox, which manufactures software and hardware that allow people with speech problems to communicate, last October.

Dividends hiked

In other news, CareTech saw net debt edge down to £263.1m as of March from £268.9m six months earlier. This helped reduce its net debt to adjusted EBITDA ratio to fall to 2.8 times from 3.1 times at the end of financial 2020.

Finally, CareTech pledged to pay a half-time dividend of 4.6p per share following its strong first-half performance. That marks a 15% improvement from the 4p interim payment shelled out last year.

Executive chair Farouq Sheikh said, “The group’s first half performance has been strong with all operational divisions demonstrating considerable resilience… Covid-19 has highlighted the importance of having community based, high quality social care facilities to relieve the pressures on the NHS”.

He added, “We remain confident of our outlook, delivering further earnings and dividend growth and in the long-term prospects of the business.”

Why I’d buy CareTech shares

City analysts seem to be in agreement that CareTech will keep enjoying solid progress on these fronts, too. Indeed, annual profits are tipped to rise 8% and 9% in financial 2021 and 2022 respectively. This leaves the company trading on a forward price-to-earnings (P/E) ratio of just 13 times. Of course, forecasts can change based on future developments. 

But I think this valuation is far too low given CareTech’s terrific defensive qualities. Its operations remain stable during economic upturns and downturns. And what’s more, it is a market leader in a growing sector. Government forecasts suggest the number of adults requiring social care between 18 and 64 years of age will rise 29% between 2018 and 2038, for example.

Okay, firms with large appetites for M&A like CareTech can take a hit if acquisitions disappoint. This particular UK healthcare share is also vulnerable to potential changes in healthcare investment at the government level. But all things considered I still think this AIM firm is a top stock to buy for my portfolio right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

GSK shares plummet 15% in a week! What’s going on here?

GSK shares had a bad time last week. They're down 15% as investors' sentiment soured ahead of litigation proceedings in…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

Stock market recovery: have all the bubbles now burst?

Asset bubbles keep on coming, and here's what I'm doing to navigate through them and invest for the stock market…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

How I’d invest £290 a month in UK shares for a passive income that beats the State Pension

UK shares can offer a lucrative path for passive income. Our writer considers a plan to double his State Pension.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 of the best shares to buy now with £2,000

I reckon the best shares to buy now have strong growth in earnings and recent good news flow, such as…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m aiming for £500 a month in income from dividend stocks 

Here's my three-step plan for achieving a growing income from dividend stocks and three companies I'd use to help execute…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

UK shares are cheap! So why is Warren Buffett ignoring them and should you too?

Many British shares are trading cheaply and pay dividends. This is normally the hunting ground for Warren Buffett, yet he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’ve increased my passive income by 600%

Finding the right opportunities can bring spectacular results. Here’s how our author has managed to increase his monthly passive income…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Could lithium shares make my Stocks and Shares ISA a goldmine?

Our writer is considering buying lithium shares for his Stocks and Shares ISA. Here, he outlines the decision process he…

Read more »