Dull outlook at Westminster: The Investment Column

Westminster Healthcare's unsuccessful bid for rival nursing home operator Goldsborough last month put the City spotlight on a relatively neglected sector. The rationale of the offer was that after a boom period, nursing home operators have run into a tougher market as local authority healthcare budgets are squeezed. The new growth areas are home care services, where patients are treated at home, or other short-term care facilities where fee income is higher.

Westminster is trying to diversify into these new areas and the bid for Goldsborough would have provided a handy short-cut. The bid's failure cost pounds 2.7m in fees which will appear as an exceptional item in next year's accounts. But the message Westminster was trying to get across yesterday is that the nursing home market is not the dead end some have portrayed.

Results for the year to May showed a 27 per cent increase in pre-tax profits to pounds 17.6m. The company says its occupancy rates have picked up again after a flu epidemic and that the market is due for a shake-out. Chief executive Pat Morton says the fears over the nursing home sector are overdone. He sees some capacity coming out and demand continuing to grow. He also feels the squeeze on local authority budgets will ease. This may be wishful thinking but Mr Morton points out that the sector grew by 7 per cent last year. Encouraging, but Westminster admits that its new homes are taking longer to fill than three years ago. With 500 new beds coming on to the market from Westminster alone this year, that is hardly going to ease the over-supply problem.

Westminster is trying to expand its non-nursing home activities. Fourteen per cent of group operating profits came from specialist services compared to just 2 per cent the year before. Next year the company hopes to boost that figure to over 20 per cent. It has made some sound acquisitions in areas such as disabled housing though there is a dearth of quality companies for Westminster to snap up.

Westminster's shares have fallen sharply following the bid, though they closed 1p higher yesterday at 281p. On forecast profits of pounds 22m they trade on a forward rating of 10. Unexciting.