Shares: Healthy signs of old age

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The Independent Online
READERS of this column will know that I am a raging bull of health-care stocks. Among the reasons is the explosion in the numbers of older people. Two statistics give the background. The number of Britons aged over 85 is expected to rise from less than 900,000 in 1991 to more than 1.3 million by 2011. The number of prescriptions written annually for the over-85s is 12 times that for younger people. Companies providing services to a market growing at this sort of rate should do well

One obvious group to benefit from greater numbers of dependent elderly are the providers of specialised nursing-care services. Over half the National Health Service's hospital beds are occupied by elderly patients who can be looked after more comfortably and more cheaply in purpose-built nursing homes. Two quoted companies, Takare and Quality Care Homes, both coincidentally priced at 236p, are growing rapidly by meeting this demand.

The larger Takare is adding new homes at a rate of one a month against one every two months for QCH, which recently more than doubled profits for the year to 31 October 1991. On the 1993 forecasts of the analyst Ingrid von Hentschel, at stockbroker Beeson Gregory, both shares are on price-earnings ratios around 16, which should prove good value.

The Care in the Community programme starting in April, which transfers responsibility for care of the elderly from central government to local authorities, may cause some temporary uncertainty, but should reinforce the growth in the longer term.

One company which is actively excited about the arrival of the much-delayed Care in the Community programme is Tunstall Group - now 390p - which provides emergency communication for the elderly linked to central monitoring stations. Tunstall's equipment is already used by more than 700,000 either in sheltered housing or in their own homes. The group is targeting Europe and already has a successful subsidiary in Germany supplying communications systems for nurses. Profits are growing strongly again after a sticky period and prospects look excellent.

One company much recommended in this column is ML Laboratories, up from 430p when I first wrote about them to 1,188p currently, and on track to fulfil hopes that it will be the next Glaxo. ML has just passed a milestone in its development by winning a product licence for its kidney dialysis solution, which has been under development or in trials for 13 years. Further approvals should follow for the rest of Europe, the US and Japan over the next three years.

The big question is whether ML will go it alone in marketing or link up with one of the existing big players in the market such as Baxter Healthcare to move rapidly to a significant share of a global market estimated at pounds 3bn. ML is already capitalised at pounds 321m - a daunting sum for a company that has yet to make a profit. But prospects could be remarkable, because by 1995 it could be making sizeable profits from three blockbuster products. Its globally patented glucose polymer solution for kidney dialysis is under trial for another application, as a delivery medium for certain kinds of cancer treatment.

The third string to ML's bow is provided by Innovata Biomed, its 75 per cent-owned subsidiary, which has developed a dry-powder inhaler for delivery of, for example, asthmma medications. The other 25 per cent of IB is owned by former senior employees of the Swedish pharmaceutical superstock Astra, and the product is already earning royalties in a joint venture with another interesting health- care company, Bespak (616p).

Seven years ago, Bespak suffered a setback when its main customer, Glaxo, which then accounted for 70 per cent of its sales, found itself overstocked with the valve Bespak was supplying, and temporarily stopped deliveries.

Those days are long past. Glaxo only accounts for 25 per cent of turnover, even though the business has grown. Bespak also has a thriving US business, partly because of the recent rights issue-funded acquisition of Tenax. Bespak is on course for 20 per cent-plus earnings growth for the next two years and probably beyond.

Last but not least is a small but fast-growing company, Seton Healthcare (330p), which has become an avid collector of niche health-care brands that are too small to attract the giants. Its specialities are its range of tubular bandages and wound dressings, and topical pharmaceuticals. It has also recently moved into painkillers. A measure of growth is that since the early Eighties the number of prescriptions written annually for Seton's range of branded products has risen over tenfold to more than 5 million. Earnings per share are on a 15 per cent-plus growth path and shares look attractive.

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