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.

*The value of investments can go down as well as up. Investing in equities can lose you part or all of your capital. Smaller company shares can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares. Cornhill Asset Management Limited is an Appointed Representative of Argyle Investment Advisors Limited which is Authorised and regulated by the Financial Services Authority. UK-Analyst.com is owned by t1ps.com Ltd which is authorised and regulated by the FSA and can be contacted at 5-11 Worship Street, London EC2A 2BH or on 020 7562 3370.

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

trading update this week

Trading Update

RNS Number : 0235G
Healthcare Locums PLC
25 January 2010

Healthcare Locums plc
('HCL' or the 'Company')
Trading Update
Healthcare Locums plc, the UK's largest and one of the fastest growing
specialist health and social care staffing companies, reports on trading for the
52 week period to 31 December 2009.The Company will report its preliminary
results for the year ended 31 December 2009 in the fourth
week of March 2010.
Trading continues to be robust with consistent month on month revenue and profit
growth in all divisions throughout the year. The Company can report that it
expects results to be in line with market expectations.
All divisions have shown very strong performances in 2009 and the Company
anticipates continuing growth in each of its divisions into 2010.The
international permanent placement division had a particularly strong second half
in 2009 following the opening of new offices in Australia, Canada and Abu Dhabi
in the latter half of the year. The international market is being driven by the
huge shortages of healthcare workers worldwide; HCL's particular focus is on the
US market, where 1.2 million new nurses will be needed by 2014, and in the event
that President Obama's healthcare reform bill gets passed, demand for suitably
qualified healthcare staff in the US will continue to rise, as a potential
46 million people gain access to the healthcare system for the first time.
In the UK, the Doctors, Qualified Social Workers and Allied Health Professional
businesses have continued to deliver good performances. Demand continues to be
driven by the ageing population, and a deficit of appropriately qualified health
and social care professionals available to meet this demand. Management believes
that the NHS will continue to expand frontline services to meet the healthcare
needs of both a growing and an ageing population. It is now widely recognised
that the use of flexible agency staff is a cheaper and more efficient
alternative to the high cost of full time employees, and that a workforce ratio
of up to 20% flexible staffing to 80% permanent is the most cost effective way
to manage the huge public sector workforce with its growing and unsustainable
pension liability.
Kate Bleasdale, Executive Vice Chairman of Healthcare Locums plc, commented:
'We are very pleased with the Company's performance which demonstrates that we
can continue to deliver very strong organic growth. We are operating in a market
place that is not exposed to the negative impact of the wider economic
environment and the opportunities for our business are very exciting. The UK
health and social care flexible staffing market is currently worth in excess of
GBP1.4 billion annually, and an international market for permanent placements of
healthcare professionals is worth over GBP8 billion. We look forward to 2010
with confidence.'

didn't mention about debt but there is a plan to get rid of it this year so..good news anyway

Good solid statement, I like the importance they place on International growth.

259... anyone understand that drop ?

251 pretty cheep, isn't?

251p is pretty cheap, and I have noticed buyers nimbling away all the way down today.

Every 3 months or so there seems to be a bit of a price correction. Their recent trading statement was on track, so maybe this is a chance to pick up some more stock before the 300p level.

Also relatively low volume.

daniel steward is a BUY today.this make some sense since said that 2 Nov last year..

will it hit last tree shake support?

Well thats where it came to rest today, lets see what tomorrow brings.

232!.. i can't believe its going lower..200?? going to be bargin of the century

Interesting to see if it bounces off the 200 DMA.

seems all nhs trusts are now going to have to "tighten up" on all the locums they employ. dont know if this is reason, but may be relative to price movement. anyone know more details?
regards
jkd

US will be the driver from now on imo ,looking for confirmation of the bottom before adding.

DYOR , etc , etc

agree Dil , also solid statement, 50000 buy CEO 2 months ago at 252.. mm's treeshaking may going on stock not pretty liquid, big buy maybe soon..

Agree that the US will be the main driver of future growth, not to sure about this being a tree shake, they normally only last a day or two. Last November was a tree shake which lasted a day and a bit.

Interesting that yesterday we saw 387k buys against 189k sells, if that ratio continues this morning then we should see a bounce.

sp drop could be hunt for these few pretty big sells today just after 16.00.today republicans says that could support bill on jobless healthcare ,so 25th Feb big time.just bought more today at 233.drop just doesn't make any sense..