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

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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.

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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.

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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.

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