Buy Healthcare Locums - argues Rob Cullum, editor of TrendWatch

One key principle that underlies the TrendWatch investment strategy is that we normally only ever recommend shares that have just started a new uptrend. For the first time since the global credit crisis blew up, weve been forced to research more mature uptrends to find shares that satisfy our high standards. Fortunately, weve found a good un.

It wont be news to many investors that healthcare staffing in the UK is big business, but its quite an eye-opener nevertheless to be reminded just how big. The most recent figures available indicate that the staffing market was on course for an annual total of 5 billion.

Apart from the sheer size of the NHS, a number of factors contribute towards this huge figure: the desire for more flexible working conditions by staff, past failures to invest in the training of a sufficient number of specialist staff, the implementation of the Working Time Directive. But lying behind all of these are the demands of an ageing population, medical advances and also the fact that the vast sums sucked into administration actually seem to boost the need for external support, rather than the reverse.

The NHS accounts for around 45% of the total spend, but with another figure of 45% emanating from the provision of homecare staff. Demand for recruitment services provided by private-enterprise intermediaries such as Healthcare Locums is unlikely to be threatened by superbly organised and far-sighted direct recruitment policies of the client organisations such as the NHS, if you catch our drift.

Healthcare Locums, now four years old, is a group supplying specialist healthcare professionals to both the NHS and the private healthcare sector.

Its ruling ethos is the focus on higher-margin, longer-term specialist staff such as doctors, social workers and allied health professionals (AHPs), rather than the placement of nurses, for example. Working from two call-centres the group avoids the requirement for a costly high-street presence. The admission document argued that being able to supply staff nationwide without a local branch network enabled higher margins still.

This ethos means that, whilst it has lower volumes, there is a higher average transaction value and, in general, placements are longer term. Demand is not as immediate; and the overheads to service this market are therefore lower. It has an expanding database of registered locums across all specialties. Nearly half of these placed by the company at the time of its original flotation were from overseas; and the company had established an international recruitment division with 23 international partners across Europe, the Middle East, Australia, South Africa, New Zealand, the USA and Canada. This is a two-way trade placement outside the UK is a growing area of business.


On flotation, it comprised four discrete significant entities, brought together through acquisition.

the decade-old Thames Medics, a specialist in providing GPs, doctors and psychiatrists to the NHS and private hospitals. This was followed by
Eurosite Medical, a provider of AHPs to the same client groups. Then came
Medical Technical, a specialist in support staff (plaster technicians, sterile services technicians, phlebotomists and the like). This added scale, and also reach, enabling the group to access the supply of operating theatre technicians. Finally
Recruitment Specialist Group extended coverage to qualified social workers.
In November 2005 the company raised 13m at 55p. Six months into public life, it bought BBL for a total consideration of 10.5m, with 5.0m immediately payable in cash (financed by banking facilities) and a further 3m to be satisfied at completion by the issue of ordinary shares. 75% of BBL's income came from recruitment of hospital doctors; most of the rest came from recruitment of GPs.

After almost exactly a year as a public company, it raised 16m in the market at the same 55p price to acquire Blue Group, one of the leading qualified social-work agencies in the UK, for a maximum of 14m - with 10m payable in cash on completion. Blue Group's turnover in 2006 was 36m, and it was reckoned to have 15% of the market in Qualified Social Work (QSW) agencies. The acquisition was a three-way fit: First, Blue also had no branch network; the plan was to integrate the call centres. Second, the back-office integration was expected save 1m a year, starting in 2007. Third, it would help Healthcare Locums' intent of achieving a 33% split between its three core markets - AHPs, doctors and QSWs.

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This history makes the most recent figures for the 100m company irrelevant but the forecasts compelling (see table below).

2006 2007 2008*
Revenue (m) 64.63 144.1 169.50
Pre-tax profit (m) 1.08 12.40 16.90
Earnings per share (p) 7.10 9.00 12.30
Dividend per share (p) - 1.50 2.60

*Forecast
The main figure of interest in the 2006 accounts was the 16% organic growth. But the picture was clouded because it coincided with another substantial acquisition, JCT Locums, for 5.5m cash.

Current trading is robust and in line with management expectations, with one of the key drivers still being that of organic growth. The company is now market leader in each those three specialist divisions (AHPs, doctors and QSWs), and is very close to delivering the one-third income split targeted by the board. It says it will now cease strategic acquisitions so as to concentrate on integration.

The chief executive and 10% shareholder is Kate Bleasdale, a former nurse (ironic, given that her company avoids the nursing recruitment market). More importantly, however, shes a first-class businesswomen with a distinguished entrepreneurial history, and (by way of a footnote) a record-holder for the award of 2.2m damages when she sued her previous company for sex discrimination.

Performance to date has been dazzling; but it we should recognise that, with 13 acquisitions all told, this has, in a sense, been the easy bit. And with debt now running at 34m, up to nearly 6m to be paid out by way of deferred consideration and 67% of sales emanating from the NHS, the company may be a bit boxed-in.

Nevertheless, heading for earnings per share of 9p this year and 12.3p next works out to 12 times earnings in immediate prospect, falling to about 8.5 next year. These numbers leave plenty of medium-term price headroom. BUY

I'm out , that'll do nicely.

I stand corrected!!!!!

Business Financial Newswire
"Healthcare Locums has confirmed that it has received an approach which might lead to an offer being made for the company.

It said a further statement would be made as soon as possible. "

[Bidder's apparently Equinox Partners, which yesterday said it raised its stake from 11% to 16%]

Note from Collins Stewart:
"Conversion of operating profit into operating cash flow (post capex) was 72% in 2008 and 78% in 2009. Conversion of profit after tax into Free Cash Flow was 86% in 2008 and 91% in 2009, though flattered by low cash tax paid. Even assuming a normal cash tax charge, we expect conversion of profit after tax into FCF to average c.100% (2010-12). We forecast that the company will have c.2m of net debt by the end of 2010 and will double the dividend to 10p in 2010. Target price 305p."

i don't know why anyone selling now, this is just beggining..

51 points in one day is awsome stuff..love it

Yes, but if the offer is rejected & the bidders walk away, the sp will tank down to 180p again.

Yep , pays yer money and takes yer chance. I was just happy to get out with a reasonable profit.

certainly too late to buy now

Dizzy heights at 235p...take profit.

And if the offer comes in at 300p?..........

so what? ..... sp will show a 10/20% discount to that to allow for uncertainty and time lag before completion

'Cos there is a strong chance of HLO being bought for circa 3, that would be a PE of less than 10 on Peel Hunts 2011 EPS of 30.82p. Also KB bought a load at 252p not so long ago & it think it would be unlikely that she would sell the company too cheaply having built it up from scratch. The only proviso is that she may pitch the price too high for the bidder.

answer as above!

if takeover we win, if not- approach is giving message about business potential, worth buying, cold shower needed :)

According to the Mail recently, a bid of 275p is going to be the first approach. The implication is that K.B. will probably accept this, but this is only press speculation so far.

This seems to be grinding on forever, with no end in sight! Some kind of news would be encouraging.

The longer this drags on the less chance a bid will materialise.

AGM Statement.

Trading Update

Expansion into Specialist High Value Nursing Provision



Healthcare Locums plc, one of the UK's largest and fastest growing specialist health and social care staffing companies, reports on trading for the first quarter of 2010.

Cumulatively, trading in the first four months of the year was in line with management's expectations, despite slower than expected trading in April, due mainly both to the disruption caused to travel which affected the placing of international permanent staff, and a softening in domestic demand for locum staff in the run up to the General Election.The Company is however pleased to report that since the year end it has a won a number of new key contracts for its UK locum divisions, from large NHS and PCT operators across the UK. The Company estimates that the total potential annual value of these contracts is in excess of 13 million of revenues.



The international division continues to grow with significant increases in the database of healthcare staff applying for international permanent placements. HCL currently has over 18,000 candidates registered to take up international positions, an increase of 44 per cent over the 12,500 candidates we had registered at the end of 2009. The USA expects to see job openings for approximately 1.2 million Registered Nurses by 2014 and this number is set to increase, as a further 32 million people now will have access to healthcare as a result of the new healthcare bill passed in the USA.

Business Financial Newswire
"Health and social care staffing provider Healthcare Locums intends to expand rapidly into the specialist nursing market organically and to explore acquisition opportunities.

The firm said trading in the first four months of the year was in line with management's expectations, despite slower than expected trading in April, due mainly both to the disruption caused to travel which affected the placing of international permanent staff, and a softening in domestic demand for locum staff in the run up to the General Election.

Since the year end it has a won a number of new key contracts for its UK locum divisions, from large NHS and PCT operators across the UK.

The company estimates that the total potential annual value of these contracts is in excess of 13 million of revenues. "

DIVIDEND -
Shareholders should note the following relevant dates:
Ex-Dividend Date - 2 June 2010
Record Date - 4 June 2010 (????? Possible error)
Payment Date - 25 June 2010

Harry what happened to the take over bid?