Results from Marseille, the third largest German care home operator, suggest the recession is hitting even the care home market in Germany.

Shares in Marseille fell 26% to €5.5, after the company unveiled a fall in pre-tax profits from €12.1m to €1m in the half to December 2008. The company blamed the drop on exceptional items, but analysts reckon that care home occupancy rates dropped over 1 percentage point to 88.8%, year on year, in the quarter to December 2008.

They say that this shows that, as unemployment rises, so some Germans will choose to look after relatives at home, and will pocket the care allowance, rather than spending it on a nursing home.

Occupancy rates in rehabilitation units, which make up 18% of Marseille, will also decline, as Germans become more wary of taking up to six weeks off work. Experience shows that those who take 'Reha' are more likely to be sacked.

A one percentage drop doesn’t sound like much, but a 1% drop leads to a drop of profits of around €2.2m. Marseille Chief Executive Axel Holzer sought to convince analysts that the drop in occupancy rates was a short-term blip, reflecting a ramp up in occupancy rates in seven new homes, and indicated that he expected occupancy to reach 95% in six months.

Another Marseille spokesman blamed the fall on exceptional items, such as tax changes and a sale and leaseback profit last year. But analysts say that Marseille’s results routinely disappoint: “There are always exceptional items,” commented one.

There are bright spots; Marseille has two centres in Eastern Germany which provide low cost sheltered housing or assisted living: “An investor converts a building into a home, and people move there when they are still fit, so they don’t have the psychological resistance that care homes have. It is a two star concept which many can afford. We have done proof of concept and plan to open more. Buildings are cheap in the East.”

Marseille still plans to sell its Reha units, and is looking to buy small acute hospitals near care homes, which it can integrate into elderly care.

Our Analysis: Even at €5.5, Marseille is still trading on around 10 times forecast EBITDA, including 20% property. If it dropped to 5-6 times then it would almost certainly attract a bid from a private equity fund.

In any case, Ulrich Marseille is still active in the business, and the family has a 60% stake. It will be interesting to see if Curanum is also seeing a slip in occupancy rates when it announces its results in March.