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

No surprise there, imo. Now looking for steady growth over the next couple of years. Almost time to add a few at 177p.

Harry have they resolved their accounting differences with their auditors?

I feel it is too early to enter. More downside to come.

No idea, h. That all seems to have been forgotten.
Will be interesting to see if KB makes a statement as to why the bid failed. Will it be just on price or other issues?
Bearing in mind that the sp tanked due to the questionable accounting changes, if we can get over that particular hurdle, the business seems to be very sound, even in a time of recession, when full time staff may be laid off, but locums should then benefit.

Are you still short hlyeo, or looking to go long now?

Back to it's 12 month low.

surely will be adversely affected by government spending cuts.

exactly so, as is/was CNT

But government cutbacks in the Health Service are not in frontline staff but in managerial & administrative posts.

156p now... with current government spending budget cuts sees HLO down to 100p.

Had a few @157

StockMarketWire.com
"Healthcare Locums has raised 11m and has entered into conditional talks to acquire Orion, the business and assets of LML and businesses and assets of Redwood Health.

Healthcare Locums said it had placed 7,333,334 new ordinary shares at 150p apiece.

It said the proceeds would be used to finance the acquisitions of Orion, a specialist nursing and healthcare staffing locum business in the UK and the LML Business, an established Australian medical staffing business with a database of over 3,500 qualified doctors.

Redwood Health Limited is a leading player in the specialist nursing locum placement market and is being acquired for an initial consideration of 5m together with potential earn-out consideration of up to a further 1.65m to be paid dependent on the future performance of the business.

The Redwood acquisition is subject to shareholder approval and the provision of the appropriate debt finance. "

Interesting to note that Redwood is owned by Kate Bleasdale's newly acquired husband. I wonder if shareholders will approve the price being paid?

The problem with this market is nearly all shares drop below any rights or placing price. Although I didn't do it, it was an almost certain short at 160p and I suspect that unless a predator comes calling, the sp has a long way to drop yet

http://www.telegraph.co.uk/finance/newsbysector/pharmaceuticalsandchemicals/7895485/HCL-boss-spends-7m-on-husbands-medical-company.html

That's an interesting article, summed up by the phrase "Redwood....... indicate the existence of a material uncertainty which may cast doubt about the company's ability to continue as a going concern." I hope KB doesn't regret mixing business with personal matters.

Heading steeply downwards...143p now.

HCL boss spends 7m on husband's medical company


Kate Bleasdale, the colourful businesswoman behind listed medical recruitment company Healthcare Locums (HCL), has agreed a 6.7m deal to buy the business and assets of a company owned by her husband, John Cariss.

The deal for the Redwood Health business comes despite the company carrying a "going concern" warning in its most recent set of accounts. The auditors have also included a cautioning note that the company had failed to hit projected trading results.

Healthcare Locums agreed an initial price of 5m for the Redwood business with a further 1.65m to be paid dependant on the performance of the medical recruitment business.

The sum is being paid to John Cariss's investment vehicle Cardale Investments, a company that Ms Bleasdale was a director and major shareholder in until she resigned four weeks ago.

In its last set of accounts for the year ended December 31, 2008 Redwood registered profit before tax of 912,000.

However, the company's auditors Haines Watts warned in the accounts: "The group's trading results to August 2009 are below those projected and should this trend continue the group may require further funding.

"These conditions, along with other matters ... indicate the existence of a material uncertainty which may cast doubt about the company's ability to continue as a going concern."

On Healthcare Locums calculations the Redwood business is being picked on a 3.3 times multiple of prospective earnings, significantly less than the 5 times average multiple for other recent HCL acquisitions.

The calculation compares the initial 5m acquisition price against Redwood's unaudited 1.5m prospective earnings for 2010.

A spokesperson for Healthcare Locums said: "This is a transaction being carried out at significantly below the market (price), which suggests we are underpaying for it.

"The acquisition has passed the fair and reasonable test by the company's advisors Fairfax."

She started her first medical recruitment company Match Group with a 5,000 loan from her parents.

However, with the company topping annual turnover of 185m and preparing for a flotation she was forced out by her chairman Sir Tim Chessells, a move that led to her winning a 2.2m pay-out for sexual harassment, the largest ever handed out in the UK.

Ms Bleasdale then set up and floated her current vehicle Healthcare Locums.

In an ironic twist given the 2.2m pay-out she won in 2002 Ms Bleasdale is currently involved in an employment dispute with Debbie Forster, the founder of Stayput Solutions, a medical equipment company that Ms Bleasdale invested in.

Looks like we may have reached the bottom.

Things coming together at Healthcare Locums HLO. Was trashed by the failed bid but looking now to be strengthening.