Bottom Line: Bright prospects

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The Independent Online
A DROP of 8p in Takare's share price to 266p yesterday seems inspired more by fears that Dev Pritchard, the newly deposed managing director, may shortly be inclined to cash in his 9.2 per cent shareholding than by the very mild profit downgradings in some quarters that greeted the nursing home group's 1993 figures.

The departure of Mr Pritchard, a co-founder of Takare, is a sad illustration of how an entrepreneurial personality often fails to adapt to the more bureaucratic management structure of a small to medium-sized company.

Not that Takare is showing signs of maturity, let alone dignified old age. Pre-tax profits in 1993 came in ahead of last September's rights issue forecast with sprightly earnings growth of 19 per cent and dividends up to match.

The pace of earnings could slow in 1994 as Takare speeds up its rate of new bed building - which declined to 1,000 last year because of Community Care Act reforms - to between 1,500 and 1,800, gradually using up the remainder of the pounds 68m rights proceeds.

But this investment will reignite growth in 1995 after relatively pedestrian 10 per cent earnings growth this year, assuming pre-tax profits approaching pounds 22m.

A growing social services- funded clientele will hold back growth in revenue per bed despite the recent pounds 2.50 rise in DSS fees, and new legislation has reduced the speed with which beds are filled.

But control of operating margins, at 24 per cent, remains excellent and the social services are allowing premium rates in London and the South-east, an area of strong demand hitherto unexploited by Takare.

At 266p, a prospective p/e of 18 and yield of 1 per cent look as demanding as ever. But prospects are bright once Mr Pritchard's intentions are known.