The Investment Column: Care UK has the right prescription for growth in the years ahead

Caffè Nero brews impressive figures; Ukbetting is odds-on for a profitable future
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The Independent Online

This week's Government White Paper underlined the commitment of New Labour to getting the private sector to play a greater role in providing healthcare in this country. Care UK is one of the biggest listed beneficiaries from this trend. It runs nursing homes, provides home care services and treatment centres which can conduct minor operations.

The group's AGM statement yesterday assured the City that trading is in line with expectations and that it is making solid progress across all the above divisions. For now the bulk of Care UK's sales, about 40 per cent, come from nursing homes. The private sector has been involved in this type of health care for some years and it is the bedrock of the company's business.

However, Care UK is fast moving into other areas. The setting up of clinical treatment centres, which the Government hopes will take the pressure from traditional general hospitals, is one. So far the company has set up two of these centres (they are essentially local hospitals in all but name) and is building a further two. It will fund their construction and in return is assured by the Government that NHS patients will be referred to them for at least five years at a fixed fee per procedure.

Should the Government decide to abandon this arrangement, it is obliged to purchase each centre from Care UK at the going market price. From an investment point of view this is great for the company as it substantially reduces the risks it faces. The arrangement also provides the company with great visibility of earnings and, of course, a good asset base.

Meanwhile, the company is also moving into specialist services such as foster care and homes for youngsters with eating disorders, along with providing various types of mental health care.

After yesterday's 16p rise to 487p, the company trades at 23 times forecast earnings for 2006. Relative to the wider stock market this looks expensive, but investors should not forget that Care UK is on course to deliver earnings growth of more than 20 per cent this year, that it enjoys high business visibility and also has a flawless track record. With the Government aiming one day to have 15 per cent of NHS services in the hands of private companies (currently this stands at just 2 per cent) there is clearly plenty to play for in the years ahead.

Care UK shares hit an all-time high of 510p at the start of last month and then retreated after an extended bout of profit-taking. Investors should use this weakness in the stock as a buying opportunity.

Caffè Nero brews impressive figures

Caffé Nero's recent performance is what many other retailers can only dream of. Britain's third-largest coffee bar chain has managed to shrug off the downturn in consumer spending and the effects on business of the London bombings. It seems that while cash-strapped consumers are reluctant to splash out on electrical goods or clothes, they will happily spend two quid on a cup of coffee.

Caffé Nero serves up brews made from Italian-style roasted beans alongside paninis and pizza, and is cashing in on the coffee culture that is sweeping in from the Mediterranean.

Britain's appetite for lattes and espressos shows no signs of waning: Caffé Nero reported yesterday a 76 per cent jump in first-half pre-tax profits to £3.5m. Like-for-like sales advanced 4.5 per cent, despite the London bombings, which kept tourists away over the summer.

Sales growth in December and January was even more impressive at 6 per cent, taking in the key Christmas period.

The 250-strong chain is opening four stores a month with the aim of having 400 in a few years. With low central overheads and cheap regional management, stores can be opened at little extra cost.

Gerry Ford, the chain's American founder and chairman, also wants to branch out overseas, targeting markets such as Scandinavia and the Middle East.

Caffé Nero shares have performed strongly - up 0.5p at 251.75p yesterday - but with the coffee bar market continuing to grow, probably have further to go.

Ukbetting is odds-on for a profitable future

Ukbetting provides sports content over the internet and aims to make money by getting the people who read it to place bets on its many gaming websites. So far it has not succeeded to do so in any meaningful way but the company has bags of potential because of the 8.5 million people who regularly log on to its sites.

Such users are significantly more likely to place a bet on a sporting event or play online poker, and tend to place much bigger bets than those who go directly to the site.

Ukbetting launched a new service yesterday which allows its customers to access the best odds on any sporting event through their mobile phones. Once again this is an example of the company trying to monetise its user base, albeit through a mobile phone rather than simply over the internet.

The group does have other sources of revenue - it sells its content to others and also allows advertising on to its sites in return for a fee. However, if Ukbetting succeeds in getting a good chunk of the 8.5 million people who read its content to spend money on its betting sites, it will become a seriously profitable company.

The legendary UBS trader Jon Wood certainly believes this is very likely to be on the cards. The Swiss bank controls 21 per cent of the group and the lion's share of this is held by the proprietary trading desk he runs.

Given Ukbetting's potential, the current rating of its shares - 19 times forward earnings - is not excessive, and the stock is worth a punt.