Healthy sign for Intercare

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The Independent Online
SIGNS of reviving interest in healthcare shares could be good news for deeply out-of-favour Intercare Group. The shares have plummeted to 52p from a 1993 peak above 200p, buffeted by a dismal procession of profit warnings. The next set of figures for the six months to end-April - due to be reported in the third week of June - are going to be bad, but that should mark the bottom, and recovery thereafter could be swift. The current price-earnings ratio could fall to seven or less on likely 1996 profits.

The group is the vehicle for Peter Cowan, an optician turned entrepreneur with a history of helping to revive struggling quoted companies. He took Intercare into importing and distributing dental and optical products and making mobility products and wheelchairs. Between 1990 and 1993, sales rose sixfold to £39m, profits from £504,000 to £4.3m, and earnings per share 150 per cent to 10.5p.

Then two divisions of the business hit problems simultaneously. The biggest difficulties came in the Netherlands, where the group supplied a mobility scooter recommended by the government and sold on high margins. But responsibility for the scheme was transferred from central to local government, which reacted partly by deferring spending and by bringing into service stockpiled second-hand scooters. The result for Intercare was a fall in sales of nearly 40 per cent and halved profit margins.

The occupational health business also hit problems. This division supplies first-aid kits for big companies. The group tried to develop the business by supplying a range of vending machines and building a network of self- employed agents to sell equipment to smaller concerns. Neither new venture has proved successful and both have been ruthlessly trimmed.

A third factor that is going to have an impact on the current year's first-half figures is a two-yearly optical exhibition being held at the end of April. In anticipation of new products and special offers, buyers hold off until the exhibition. The group believes this could defer as much as £1m of sales to the second half of the year, with a consequent impact on first-half results. Normally, the group makes around a third of profits in the first half and two-thirds in the second half, with mobility product sales concentrated in the summer months. Because of the deferred sales, that split is likely to be even more skewed to the second half this year, especially given plans to launch a new range of mobility products in April at the start of the peak selling season.

The same forces working to make for a depressing first-half comparison should make the second half look correspondingly good. In the second half of last year, the group made just £1m profit, against £2.8m in the second half of 1992/93.

It would not be too surprising if profits for the first half of the current year to 31 October 1995 were down by a half on the £1.4m achieved last year. But recovery in the second half could be striking, helped by the absence of start-up costs in occupational health, some sales recovery at modest margins for the mobility division and the second-half bias of optical sales. Second-half profits could conceivably be double the depressed comparable figure last year, which should lift the share price.

Conditions should then be ripe for a further useful recovery in the year to October 1996. That should put two reasonable half-years together to take profits to perhaps £3.6m, for earnings per share of 7.5p to 8p and a prospective price-earnings ratio of perhaps 6.5. That is low enough to leave scope for the shares to double in a more cheerful healthcare sector.

Thereafter there should be further action. Mr Cowan .is unlikely to allow Intercare's shares to stay flat for much longer.