Costs leave nursing homes looking sickly
The Investment Column
Saturday 20 April 1996
The group warned that its own levels would fall again in 1996, a problem that is likely to be common to the industry, as local authority budgets are again squeezed by central government. Laing & Buisson, a specialist consultancy, estimates that cuts in funding put at pounds 120m this year could spell between 10,000 and 12,000 fewer places. If that lands disproportionately on the private sector, as expected, that could spell a reduction of around 5 per cent. Meanwhile, the rate being paid to nursing homes for residents still covered by DSS payments has been increased by a meagre 2.7 per cent this year.
And while sales growth is being constrained, care homes are facing a pincer movement on costs. Nurses' pay for instance, which rose nearly 7 per cent last year at Westminster Health Care, the biggest operator, is rising well ahead of income. The industry is also being forced to start depreciating property and adopt more conservative practices in accounting for start-up costs. These technical considerations, have a serious impact on profits for a sector expanding at 15-20 per cent a year.
A much bigger unknown is what impact national politics will have on the sector. Difficulties faced by the Government in financing tax cuts in this year's Budget could spell tighter limits on local authorities' budgets, while it is not yet clear what Labour's attitude to private nursing homes will be.
With all this negative sentiment, it is easy to see why shares in the private sector have underperformed the rest of the stock market. But as our table shows, many stocks are trading at substantial discounts to net asset value derived from discounted cash flow calculations by Merrill Lynch. Two of the better companies are looking more fully valued. Westminster Health Care has a credible strategy of diversification away from nursing homes to so-called "higher dependency" units for patients who need more nursing care and where funding is more secure. Quality Care Homes is also well run and has a low cost base, but a high proportion of state-financed residents and could be hit by a minimum wage.
Goldsborough and CrestaCare are looking relatively attractive as recovery plays, but these are only for the brave. External factors, combined with industry rationalisation, are likely to mean that the sector will remain under a cloud for a while yet.
The Microsoft mogul told fans a few home truths during his Reddit AMA
- 1 Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
- 3 Ball pool for adults opens in London
- 4 Baldness could soon be treated using stem cells, scientists hope
- 5 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
Woman falls to her death as she celebrates marriage proposal at the edge of Ibiza cliff
Boris Johnson claims porn-obsessed Islamic jihadists are 'literally w*****s'
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Teenager brandishing fake gun taken down by police after demanding airtime on Netherlands' NOS TV station
Ball pool for adults opens in London
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...