CareTech provides specialist support for adults and children who have a “wide range of complex needs.” The company has more than 200 properties in the portfolio, which provides a big chunk of the net asset value on the firm’s strong-looking balance sheet.  

Good figures

Given the rise in the dividend, today’s figures are predictably good. Revenue rose almost 12% compared to the previous year, underlying pre-tax profit also lifted nearly 12%, cash from operations increased by nearly 40%, and underlying earnings per share eased back almost 7.8%. The figures have been affected by the firm’s October takeover of Cambrian Group, a provider of specialist behavioural health services for children in the UK, which will have increased revenues along with the share count because of the additional shares issued as part of the deal.

Despite the big changes in operations during the year, CareTech reported net debt unchanged year-on-year at £147m, which is put into perspective by an independent property re-valuation that puts the worth of the firm’s property estate at £424m.

As a property-backed potential investment, I think CareTech has a lot going for it because it also operates a cash-generating care business with a consistent track record of delivering good financial results.

Executive chairman Farouq Sheikh explained in the report that over the 25 years of its existence, CareTech has grown from a focus on adults with learning disabilities towards also looking after young people and children with complex needs “across a range of settings.” He said the firm focuses on “the most complex and vulnerable young people” for which there is a market of more than £10bn in the UK. He reckons there is an undersupply of specialist beds in the niche sector with the market growing at nearly 3% per year, which I think bodes well for the future growth of the company. 

An impressive ongoing growth story

The growth story is impressive. Since joining the FTSE AIM market around 13 years ago, capacity has increased “six-fold” and diluted earnings per share have shot up by more than 750%. Looking forward, Sheikh said the firm has “major” plans to invest in 2019 and beyond, with “key new organic developments and bolt-on acquisitions.” The firm also has plans to explore opportunities abroad and is targeting ongoing “double-digit” growth in underlying earnings per share.

Today’s share price close to 348p values the company at a forward earnings multiple of just over 9.6 for the trading year to September 2019. The projected dividend yield is almost 3%. That payment should be covered almost three-and-a-half times by expected earnings, suggesting the directors see plenty of room for further growth, otherwise they would probably return more of the firm’s cash to investors rather than reinvesting into the business. I think the valuation is attractive and CareTech is well worth your further research now. I’d aim to hold this firm’s shares for the next 10 years, or so.

The post Why I’d buy shares in this property-backed dividend grower and hold for 10 years appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

And as it continues to develop its product offering, manufacturing new devices as well as expanding into new markets, I believe that it could produce enormous returns for investors. 

Gearing up for growth 

The company, which is focused on early cancer detection, is on track to begin shipping its leading product, the EarlyCDT-Lung kit in the next few weeks. Management has already signed distribution agreements with several countries for this equipment. Minimum payment guarantees of £6.1m from its Asian partners and £1.4m from European partners over the next four to five years have been confirmed. 

As well as its early detection kit for lung cancer, the firm is working towards receiving approvals for its EarlyCDT-Liver test and EarlyCDT-Ovarian test. Further progress on these two initiatives should be announced next year. 

Huge rewards 

The fiscal year ended 31 May was a transformational one for the company. Even though revenue generated was only £0.22m, the approval of the EarlyCDT-Lung kit received in May 2017 means that management can now begin to focus on sales growth. 

To help fund this expansion, the company raised £5m via a placing at the end of September. According to CEO Geoffrey Hamilton-Fairley: “With a strong team in place, a fundraising completed and our R&D progressing well the board is increasingly confident that the Company is well placed to execute that plan and deliver value in the medium and long term.” 

As of yet, there no City analyst has come up with growth projections for Oncimmune, but if the company’s products do what they say, the potential could be enormous. 

Five-year survival for lung cancer, the most prominent cancer killer, averages around 17% for all stages, but for patients diagnosed early, the five-year survival rate is as high as 90%. So the benefits (both financial and ethical) on offer if the company succeeds should be tremendous. 

Bouncing back

CareTech Holdings (LSE: CTH) is another health sector growth champion that I believe has the potential to produce huge returns for investors. It is a provider of social care services. Unfortunately, the company has recently sailed into stormy waters and earnings per share are expected to have fallen by 11% for the fiscal year ended 30 September. Excluding this blip, earnings per share had grown by 39% in four years. 

Going forward, it looks as if CareTech is going to get back on track. Analysts have pencilled in earnings per share growth of 7% for 2018, and pre-tax profit is on track to hit an all-time high. 

To help drive growth, during June management agreed to acquire the entire issued share capital of Selborne Care for a total consideration of £16.9m in cash. It is believed that this deal will be immediately earnings enhancing, growing both the top and bottom lines of the combined group and management is looking for further deals to bolt-on growth. 

As the shares currently trade at a forward P/E of 11.4 and yield 2.5%, I believe that investors can buy into this growth story at an attractive valuation. 

The post I believe these two small-cap growth stocks can make you famously rich appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no position in any stock mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.