Takare suffers in care confusion:The Investment Column

The past year has been bloody for private nursing home groups, but few have suffered as badly as Takare, biggest in the sector. Standing at 225p last September, the shares have since crashed to 136p, up 5p yesterday. The well-publicised squeeze on local authority funding has hit the group particularly hard, heavily dependent as it is on social service department budgets.

After more than three years of operation, the problems associated with the Community Care Act, which devolved financing of the elderly to local authorities, show little sign of resolution. The system appears to be in paralysis in parts of the country like Liverpool, choking up hospitals with old people who should be in homes. Takare's occupancy levels have been hit accordingly, falling 4 points to 92.4 per cent in established homes during the six months to June. With a big opening programme, Takare is highly geared to occupancy and this relatively modest drop has had a disproportionate effect on the interim figures. Pre-tax profits slumped 13 per cent to pounds 8.66m in the half year.

The occupancy problems, which have been concentrated in some of the start- up homes, have now prompted a radical change in strategy. Takare is dumping its new build approach in favour of acquisitions. Management reckons it could live with up to 80 per cent gearing if the right deals come along, giving it firepower of around pounds 100m, although it is ruling out hostile bids like Westminster Healthcare's tilt at Goldsborough.

At the same time, Takare plans to sweat existing assets by courting more private payers and high dependency residents, while offering more services from homes, such as meals on wheels, and district nursing.

The strategy makes sense, but with political uncertainties continuing, the external climate remains cloudy. Profits of around pounds 18m this year would give a forward multiple of 12. Hold.