Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Claimar Care Group- another earnings enhancing deal is positive news but the shares look fully priced (to say the least!)

Claimar Care Group has started to use some of the £7m it raised in the placing at the beginning of March.

The provider of domiciliary care services to local authorities throughout the Midlands and the North-West has announced the acquisition of Jemma Care (nice appealing name!) for a maximum consideration of £1,170,000 to be satisfied by a cash payment on completion of £1,000,000 and the balance of up to £170,000 deferred for up to 10 months subject to certain performance criteria being met.

Jemma Care is a domiciliary care provider based in Deeside, which currently employs 60 care workers. The business was established by the current vendors in 2002 and currently delivers around 1,200 hours per week, which doesn't sound too taxing for 60 care workers. It contracts mainly with Flintshire County Council. For the year ended 31st March 2006 the unaudited accounts of Jemma show a profit before tax of £205,999 and as at 31 March 2006 the company had net assets of £162,320.

The acquisition will strengthen Claimar's position in the area following the acquisition of a branch in nearby Saltney in October 2006. The good news is that the management of Claimar expects the acquisition of Jemma to be earnings enhancing in the current year, with the full benefit coming through in the year commencing 1s October 2007.

The deal equates to a post tax multiple of 7x which certainly looks good value relative to Claimar’s own valuation!

With the prospect of certain overhead savings generated from improved critical mass in this region the house broker has increased their 2008 profit before tax forecast by a conservative £0.1m to £2.8m and projected earnings per share to 6.8p.

There is plenty of cash of left for further deals following the March placing and management are apparently currently exploring a number of further opportunities. Assuming the right targets are found the sooner the better really as the substantial placing will be earnings dilutive in the short term.

Interim results for Claimar are due to be announced at the end of May. The January 2007 AGM statement highlighted a good start to the current year and trading in line with expectations. On the basis of the current rating many will surely be anticipating that expectations are exceeded in quick time!

The house broker has set revenue targets of £20.5m in 2007 building to £24.3m in 2008.

Having raised £7m at the beginning of March at a price of 105p the shares have soared over the last 5 weeks to the current level of 151p-quite a result for a business in the seemingly rather staid market of domiciliary care.

Shares in Claimar have clearly caught the imagination of many investors and I for one like the model, but following the recent meteroic rise in share price the current rating of 22x 2008 earnings surely looks fairly rich for a business of this nature. It is indeed hard to believe that this is already a business with a market capitalisation of c£44m!


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