MIDAS SHARE TIPS: Caretech Holdings

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Support: Caretech runs short breaks with activities such as wall climbing


Care homes have had a torrid time during the coronavirus pandemic. Thousands of lives have been lost, staff safety has been compromised and relatives have been unable to see their loved ones.

This desperate situation has spread a pall over the entire sector. But Caretech Holdings focuses on care for children and young adults with complex needs, from autism to anorexia. 

The business has proved resilient throughout lockdown, the board is optimistic about the future and, at £4.27, the shares look cheap.

Support: Caretech runs short breaks with activities such as wall climbing

Caretech was founded by Farouq and Haroon Sheikh, two Kenyan-born entrepreneurs, who came to this country as children. Having forged a career in property, the brothers wanted to build a business that made a genuine contribution to people’s lives.

Starting with one home in 1993, the Sheikhs developed the business over the years and listed on AIM in 2005. Today, Caretech has more than 500 dedicated care homes, schools and other facilities and looks after 4,500 people, aged five to 45.

Unlike homes for the elderly, which tend to house dozens of people, most of Caretech’s places are limited to a handful of residents and people often stay for a decade or more. Staff ratios are high, too. 

The business employs about 10,000 people, many of whom have been with the company for years. The group recognised the importance of treating employees well early on so there is a consistent focus on training, decent pay and appreciation of the workforce.

Around 900 employees own shares in the business – a high proportion for a company of this kind.

These and other shareholders have done well. The group has increased its dividend every year since 2007, rising from 3p back then to 11.7p last year. Revenues and profits have risen more than 20 per cent annually since flotation and further double-digit growth is expected.

Farouq and Haroon still lead the business, as chairman and chief executive respectively. Last month, they unveiled robust half-year figures for the six months to March and said the company had been resilient through lockdown.

Underling their optimism, the interim dividend was increased by 7 per cent to 4p, with analysts forecasting a full-year payout of 12.8p, supported by continued growth in sales and earnings.

Caretech was not immune from the Covid-19 pandemic. At one point, hundreds of staff were self-isolating and the group had to take extra care to ensure residents were looked after properly. Among residents however, there have been no deaths from coronavirus, at least in part because they are mostly young and fall outside known high-risk categories.

Looking ahead, prospects for this business are sound. According to independent consultants, Caretech’s part of the social care market is worth around £15billion, that is the amount spent annually on children and young adults with complex needs.

Caretech is one of the largest companies in this sector but it still has a market share of around 5 per cent so there is plenty of room for growth.

Most of the people that Caretech looks after are in residential care but the group also runs specialist schools, helps young adults to live alone and visits children in families. There is a specialist foster division, too, focusing on children with particular needs.

In almost every case, however, users are funded by local authorities, who are increasingly keen to outsource social care to private sector operators.

Here, Caretech comes into its own, with high quality-control scores and a reputation for helping young people to become more self-sufficient and, therefore, less dependent on public sector support.

Many of its peers are small, family businesses, with fewer resources than Caretech. The group has already acquired several such firms and more acquisitions are expected.

Caretech is developing new technology as well, designed to improve the way residents are monitored and treated. And there are overseas ambitions. 

The Sheikhs recently invested in a Dubai-based medical centre focused on children and adults with psychological problems and they are looking closely at Saudi Arabia, which has roughly the same number of children with complex needs as this country, even though its population is half that of the UK.

Midas verdict: Caretech shares were more than £5 earlier this year before plummeting to little more than £3 in the dark days of March. They have recovered since then but, at £4.27, there is still plenty of long-term potential – and an impressive dividend-paying record, too. Buy.

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