As Europe's baby boomers prepare to retire, mid-sized firms supplying retirement homes, pension schemes and specialist medical care are growing rapidly and consolidating, creating opportunities for investors, analysts say.
Double-digit profit growth has made market darlings of British nursing home owner NHP and German financial adviser AWD, whose stocks have more than doubled in value in the past 14 months alone.
But analysts said this may be just the beginning, as an ageing European population turns a relatively underdeveloped and scattered industry catering to seniors' needs into a well-oiled money-spinner.
"We clearly have a growth market here, with excellent visibility," said Robeco fund manager Yves Maillot. "These companies, even if some may have had slightly chaotic courses, show very steady profit growth."
Industry consolidation and possible market listings will create further investment opportunities in firms that manage their expansion wisely, analysts said.
Britain's Saga Group, which now makes most of its money selling insurance to the over-50s, plans a sale or stock market flotation by year-end that may raise more than one billion pounds ($1.84 billion) for the firm's founding family, which pioneered holidays for the elderly.
Saga, whose profit before tax and exceptional items rose 63 percent to 81.6 million pounds ($144 million) last year, said it had received "enormous interest" from potential buyers, but has given no hints about its suitors.
Many fund managers also expect Orpea, which manages retirement homes in France, to make a take-over bid for Medidep, in which it already holds 29 percent, although its management has said in the past that it had no such plans.
GROWTH MARKET: Analysts see care for the elderly, either within retirement homes or at private outpatient hospitals and clinics, as a fast-growing market as cash-strapped and overcrowded public heath care systems seek to transfer some of their operations to the private sector.
Orpea posted a 20.8 percent rise in first-quarter sales and confirmed its target for 2004 revenue of 220-230 million euros ($270-282 million), up from 192 million last year and 156 million in 2002.
Britain's NHP, which offers home-care services and operates care centres, reported a 51 percent rise in yearly profits in December. NHP's shares have rallied 82 percent since last March's multiyear equity market lows and have nearly tripled in value over the past two years.
McCarthy & Stone, Britain's biggest retirement home builder, is one of the sector's best performers, with shares up 74 percent in the past 14 months alone. The firm posted an 11 percent rise in half-year pre-tax profit in April.
Among private hospital and clinic groups, fund managers and analysts recommend France's Generale de Sante, Germany's Rhoen-Klinikum and Sweden's Capio, which earlier this month signed a landmark contract worth 210 million pounds in Britain to help the National Health Service shorten its waiting lists.
Analysts said Germany's reform of its healthcare system may create new acquisition opportunities for Rhoen-Klinikum as pressure increases to privatise inefficient, publicly owned hospitals, provided external growth is handled well.
"The problem clinic operators have is once you get to a certain size, the acquisitions you make have to be bigger, and the bigger the acquisitions, the more difficult they are to integrate and the more expensive they are to fund," said Jimmy Burns, fund manager at First State Investments in Edinburgh.
Burns said he was also bullish on firms that provide equipment or staff for home care, such as French home-based oxygen therapy firm Bastide, although the stock is relatively illiquid.
Beyond potential pitfalls linked to acquisitions, Burns said share prices in the sector also faced risks from any incident that might harm a company's reputation.
"It's obviously an area where there's underlying organic growth, but you have to be careful to pick the right management, the right business model, to make sure they are able to control not just the growth but also the people who work in the company," Burns said.
"All it takes is one person who says his or her grandmother is not properly looked after in a TV programme or a newspaper article. Elderly care is a very emotive subject."
Also benefiting directly from Europe's ageing population are financial advisers, as more and more people set up private retirement schemes in the face of tightening state provisions.
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