Name: Healthcare Locums plc

Ticker: HLO

Market: AIM

Mkt Cap: £243 million.

Price: Closed at 277.25p on 31/12/09, opened at 282.75p on 4/1/10, currently at 231p

Liquidity: Good

Some figures

2008 (Annual Report)
Turnover: £166 million
Norm Pre-tax profit: £17.2 million

2009 (Estimated)
EPS: 21.3p
P/E: 11.1
PEG: 0.14
Norm Pre-tax: £31.3 million
Dividend ps: 4p

2010 (Estimated)
EPS: 26.4p
P/E: 8.9
PEG: 0.37
Norm Pre-tax: £40.4 million
Dividend ps: 7.6p

Key dates:

Latest Final XD Date: 13-05-2009
Latest Final Pay Date: 15-06-2009
Year End: 31-12-2010

Recent financial documents: www.hclplc.com/page.asp?pageid=250&siteid=36


What does it do?

HCO is the UK's leading specialist health and social care recruiter. It performs recruitment and placement of temporary and permanent staff in a wide range of areas - social workers, doctors of all grades and specialities, specialist nurses, operating theatre staff, Allied Health Professionals (eg, physiotherapists, occupational therapists, dietitians and speech and language therapists) and Healthcare Science Services staff (eg, biomedical scientists, medical administrative staff, pharmacists and pathology professionals). It also has an increasing international operation, in what is clearly a huge global healthcare market.

In looking at HLO I've opted for a SWOT analysis, rather than just 'pros' & 'cons', as it gives a little more structure:

Strengths

HLO is now the largest UK provider of perm/temp health and social care staff. Having got to that position at least partly via acquisition of competitors (between 2003 and 2007 HLO bought 13 companies), it's now concentrating on organic growth, and on paying off the debt incurred during the acquisition phase, which Kate Bleasdale (founder of HLO and currently Exec Vice-Chair) says will be done by the end of this year.

HLO also intend to pay bigger dividends, having doubled them to 4p ps in 2009, and a forecast 7.6p ps this year (which would be a 3.2% yield). The dividend is also well covered (the last interim was covered 7.2 times).

HLO doesn't have any pension deficit, as it only has a defined contribution scheme.

The management of HLO has a very strong background in the staffing & recruitment sector. Prior to HLO, Kate Bleasdale founded Match Group in 1986, which became the UK's largest healthcare recruitment agency. The COO is Mo Dedat, who came from Adecco UK, and Diane Jarvis, the CFO, was originally with Match Group. A non-exec, Alasdair Liddell, adds huge expertise about the NHS and UK healthcare strategy, having been Director of Planning at the Department of Health from 1994 to 2000, and currently a Senior Associate at the Kings Fund.


Weaknesses

HLO doesn't have any great tangible assets, so there's no real 'safety net'. (Its 2008 NAV was 57.9p ps.)

It's also not cash-rich.

High dependency on one client in one country - ie, the NHS. (That said, the NHS is the third largest employer in the world, so isn't going to vanish any time soon.)

HLO's share price has already risen substantially, from 89.75p at the start of 2008, through 127p at the start of 2009, to a peak of 287p on 02/12/09. So it might seem that the good news has already happened. The fact that it's also down 17% from it's 2010 opening price is not too encouraging either. But there don't seem to be any obvious reasons for the recent fall, so this 'weakness' could actually be a buying opportunity.


Opportunities?

Older people have greater healthcare needs and the world population is ageing as it increases. For example, there are now more people in the UK over 65 than under 18, and the number of people in the UK over 65 is predicted to rise by 32% over the next 25 years, to 15.6m (source: OMS). The same trend applies worldwide*. HLO now has offices in the US, Australia and the Middle East, as well as the UK, and has an exclusive agreement with South Korea - the only country in the world with a surplus of nurses, apparently - to train and develop the country's healthcare staff for international placements.

* "The twenty-first century will witness even more rapid population ageing than did the century just past. Worldwide, the percentage of the population aged 60 years or older increased by 2 points–from 8 to 10 per cent–in the second half of the twentieth century. During the first half of the twenty-first century, that percentage is projected to increase by 11 points, to 21 per cent. By 2050, the population of the less developed regions will have the same percentage of persons aged 60 years and over as the more developed regions did in 2000. The developing countries will also reach that stage over a much shorter period of time than that required by the more developed regions. In many cases, rapid population ageing will be taking place in countries where the level of
economic development is still low." {UN Report "World Population Ageing: 1950-2050" - www.un.org/esa/population/publications/worldageing19502050/)

As a consequence of the ageing population, healthcare providers will need to increase their staffing, and will therefore need to recruit permanent staff for the long-term , and temporary staff to 'fill in the gaps' and also to manage budgets.

In the UK, regulations like the EC's Working Time Directive*, which as from 2009 has limited the maximum average weekly working hours to 48, are likely to increase the need for healthcare staff to meet the need for more staff and/or more flexible staffing.

* http://www.healthcareworkforce.nhs.uk/wtdaboutus.html

Internationally, the US Affordable Healthcare for America Act*, once finally enacted, will inevitably increase US demand for heathcare professionals - Bleasdale estimates that the US will need around 1.6 million new nurses alone between now and 2014 - and HLO are well placed to get some of that business.

* en.wikipedia.org/wiki/Affordable_Health_Care_for_America_Act...


Threats

Cuts in public sector healthcare are always possible, and HLO is significantly dependent on NHS spending. That said, if the NHS can't meet demand, private sector providers will step in, over time, to provide some, if not all, of the shortfall and will have their own recruitment & staffing needs.

Expanding internationally is generally harder and more costly than expanding domestically.


Conclusion

It's probably not going to end up winning the Share Competition, but as it's around 17% lower than when I picked it, and nothing has fundamentally changed, it should be an even more attractive buy for any real money investors out there.


Other sources of info

Kirkie001 wrote about HLO last September - boards.fool.co.uk/Message.asp?mid=11663627
And there have been mentions in a number of TMF articles over the past few months - eg,
Three Zweig Bargains - www.fool.co.uk/news/investing/investing-strategy/2009/10/02/...
This Recovery Is Gonna Make Me Rich - www.fool.co.uk/news/investing/investing-strategy/2009/10/05/...
Five Shares To Save Your Portfolio - www.fool.co.uk/news/investing/investing-strategy/2009/08/26/...

Rgds

Tarantula.