Bottom Line: Takare formula has power

TAKARE is fuming at attempts to besmirch its accounting policies. To be fair, any company that capitalises interest on developments and fails to depreciate its freehold properties is bound to be an Aunt Sally for determined critics.

But Takare is a long way from the kind of speculative property development that has given those two accounting devices such an unsavoury name.

After all Takare only capitalises interest for the first three months of construction - by six months a home is fully occupied. A revaluation shows a pounds 50m property surplus which remains unbooked. Even if Takare did depreciate and not capitalise interest it would reduce dividend cover from 6.8 to a scarcely slim five times.

All this sniping distracts from the power of the Takare formula. Friday's announcement by the Government ending NHS care for all but the poorest very sick elderly underlines the importance of privatised care.

By using two-storey homes to economise on expensive land in the South-east, where average fees are pounds 343 a week against pounds 296 elsewhere, Takare can make returns of 15 per cent or more on new homes.

Takare has the advantage of having pre-empted many areas in the North. The South-east is notoriously under-provided with nursing home care and provides a huge growth opportunity.

Care for the highly dependent elderly is set to become a an even greater issue in future and Takare's efficient, low-cost operation and strong reputation are invaluable. Growth of 20-25 per cent for the foreseeable future fully justifies a prospective p/e premium of 30 per cent to the market.

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