Bottom Line: Greenacre needs to grow into its rating

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The Independent Online
THE stock market's positive response to the flotation of Westminster Health Care, leaving the shares at a 26p, or 10 per cent, premium to its 260p issue price, reflects the growth potential of the private residential and nursing home industry.

WHC and Takare are the big players in a highly fragmented market, whose scope is growing all the time thanks to demographic and institutional changes. They have 7,900 beds between them and a further 1,350 under construction.

Some relative minnows, such as Greenacre, have prospered so far. Greenacre concentrates on the upper end of the market - two-thirds of its customers are privately financed, paying pounds 300-pounds 400 a week. This compares with the DSS-funded rate of pounds 280 at which Takare, for example, aims to operate.

A 50 per cent expansion in beds to 410 lifted pre-tax profits by 49 per cent to pounds 1.36m in the year to 31 January and permitted a 12 per cent dividend increase.

Similar expansion to 635 beds by the end of this year could take pre-tax profits to pounds 1.7m.

Current plans do not go beyond the two residential and six nursing homes now operating or under construction.

Scope exists for lifting returns as homes mature, but Greenacre, cautious and well financed, is not as committed to physical growth as its much larger rivals.

A prospective p/e of 16 and a yield of 3.4 per cent at 11.25p, only a small discount to the market leaders, does assume that Greenacre management will find further growth opportunities. Otherwise the rating is hard to justify.

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