Recovery plan has NHP on the mend

By THIS IS MONEY
Updated:

 

HOMES for the elderly may be far from glamorous investments, but nursing homes property group NHP has its attractions.

The company owns 373 sites with 18,500 beds, making it the largest owner of private nursing homes in the UK, where demand is steadily rising because of an ageing population.

In addition, it operates and manages 159 of the homes, with 5,900 beds, though its Highfield Care subsidiary, which has been built up partly through buying homes in receivership.

The nursing homes sector has been volatile and NHP has not been immune, running into big problems three years ago when tenants leasing its buildings and running them as homes went bust and concerns were raised about its level of borrowings.

Then called Nursing Home Properties, its shares collapsed to 18p and several potential bidders emerged, but no deal was forthcoming.

Instead, under new chief executive Bill Colvin, NHP embarked on a recovery plan that has seen its shares rise steadily, closing last week at 102 1/2p and valuing the group at £206.6m.

The recovery strategy has included setting up Highfield, so that NHP was not solely a landlord, and reducing its debts, partly through a £32m rights issue last year. Colvin's plan has delivered growth and in the year to September 30, profits were £16.4m, up from £10m, and net asset value jumped 58% to 103.4p a share.

Fewer tenants and Highfield's growth helped NHP more than halve its bad debt provision to £4.8m.

Highfield made an operating loss of £3.2m and is expected to stay in the red this year since a further 39 receivership homes were transferred into the business after the year end, but the long-term potential could be considerable.

• Midas verdict: Short-term concerns remain with NHP, including next month's fee negotiations with private and local authority customers. Costs in the sector have been rising because of increased regulation, but local authorities that fund many places are realising that they have to pay increased fees or face a shortage of homes.

So the sector is not without risk, but so far NHP's recovery is on track. With the net asset value underpinning the shares and a promise to return to a dividend this year, the shares are worth buying.

Midas update: Buoyant North boosts house developer C&M
LOOK out this week for interim results from housing developer Country & Metropolitan, which should show trading is still solid.

About 90% of its house building is now in the North - where trading is more resilient than in the South - following last year's £14 million purchase of builder NorthCountry, which makes affordable homes. C&M also has expertise in large-scale residential and commercial developments, and it has a joint venture to develop a former hospital site in Leeds.

Annual group profits are forecast at £6.75 million with earnings per share of 25.9p. At last week's close of 97 1/2p, the shares trade on an earnings multiple of four and offer a yield of just less than three%.

There must be some concern about gearing - the ratio of borrowings to shareholders funds - which is well over 100%, but interest charges are comfortably covered and there is good cashflow.

C&M has declared its acquisitive ambitions under chief executive Stephen Wicks, and workspace provider Headway, where it owns 11.1%, might be its next target. We first mentioned the shares as a buy two years ago at 84 1/2p and though they have slipped as low as 60 1/2p, they touched 109 1/2p last summer and should be held.

Mixed year at Universe
A DIVIDEND yield of nine% coupled with a potential growth story make loyalty card and money transfer business Universe Group worth a look.

The company has three main businesses - HTEC, which operates loyalty programmes and provides electronic payment systems focused on petrol retailers, a money transfer arm called First Remit and a bureau de change division, Master Change.

These operations had a mixed 2002, which was reflected in Universe's annual results this month, showing a

drop in operating profits from £2.9 million to £1.6 million.

Master Change suffered from a lack of American tourists in Europe, HTEC was caught up in the collapse in demand for electronic and telecoms products and First Remit is still in its start-up phase.

While conditions will remain tough for Master Change, prospects for HTEC's business look brighter and transactions at First Remit, which operates in 38 countries, are growing by 50% a month and it should move into profit this year.

Alongside the results Universe announced a total dividend of 1.95p. This leaves the shares, which ended Friday at 21p, yielding 9.3% and trading at 5.5 times forecast earnings for this

year. However, there are reasons to be cautious. Universe is listed on the Alternative Investment Market and with a value of just £7.5 million the shares can be volatile.

• Midas verdict: It is unusual to find shares that offer income, growth and recovery, but Universe may fit the bill. Be aware of the risks, but the shares are a speculative buy.

Most watched Money videos