GXL Greencross Limited/ Veterinarians

[donnie]

Greencross looks like it could be abit like ABS Learning, its got the same sort of growth plans ahead.


Pets big business

TONY RAGGATT

02May07

A VETERINARY practice model which started in the dog heaven of Currajong is headed for the national stage.

The Greencross vet group managed under the skilful eye of award-winning business operator and vet Dr Glen Richards is going public and aims to list on the Australian Stock Exchange in the middle of next month.

Dr Richards and stockbrokers from Sydney firm Bell Potter Securities were in the city last night to launch the proposal to potential Townsville investors.

A prospectus offering shares at a $1 each and forecasting earnings of 9.4c per share in 2008 is due to be released later this week.

"I feel we are creating a vehicle that is going to be great for investors and great for our clients and patient care," Dr Richards said.

"The most important aspect is that it will also be a vehicle that is going to be great for our staff."

Greencross Veterinarians began when Dr Richards, the son of cattle and sheep graziers Neil and Sandra Richards from Richmond, bought the former Currajong veterinary hospital in 1994.

The business has since been developed into five Townsville practices and, in a management relationship with Dr Richards' colleagues in Brisbane, another 10 practices trading under the Greencross model and brand.

Under planned acquisitions, another 15 practices and a specialist veterinary centre are to be added to the group, providing a total of 31 outlets in Townsville, Brisbane, the Gold Coast, Melbourne and Adelaide, creating an enterprise estimated to be worth about $35 million.

Dr Richards said the Greencross brand would be launched nationally with plans to quickly add practices to the group.

"We plan to have 150 vet practices in five years," he said.

"There's over a thousand (practices) in Australia that fit our investment criteria with turnover of $800,000 or more per practice."

Dr Richards believed the timing was right to take the model to the market, with many practices owned by ageing vets looking for appropriate succession plans and with many of the vets graduating from universities, mostly women, without the cash or willingness to take on the $500,000 investment required for practices.

He said Greencross could provide the management expertise, equipment support and career paths the vets and their staff needed to get on with the job.

The group could also provide better supply chains and strike better margins for inventories which represent much of the practices' income.

Dr Richards is set to be managing director of Greencross Limited, based in Brisbane, with a board including Count Financial director Andrew Geddes, vet and Greencross Veterinary Hospitals director John Odlum and PetsFirst CEO Associate Professor Stephen Coles.

Greencross is looking to raise $11 million from the float, creating a group with a market capitalisation of $21.5 million and an enterprise value of $35.3 million.

A price to earning ratio for 2008 has been calculated at 10.7 per share.

If all goes to plan, Greencross will list on June 15 and will follow in the footsteps of another successful Townsville venture, 1300 Smiles Ltd, a dental practice management model paying good returns, which has expanded throughout Queensland since listing on the exchange about two years ago.

[Lizard]

Another little illiquid value stock worth a look.

As per above, listed veterinarian roll-up. Requires little capital to run (hence negative NTA should be okay while cashflow is positive). Like all roll-ups, there will be some dilution over time as shares are issued to acquire businesses. Currently GXL has low debt. Based on repeat of first half, looks to be on forward P/E of about 5.5 at 87cps. Paid a final 2cps div last year, although no div indicated this half. Positive cashflow. Manageable debt and $2.5m in cash. 16% growth in eps on pcp.

[Lizard]

Announced a Heads of Agreement for a material acquisition yesterday - expect to be finalised end of April. Will add a further 14 vet practices, taking numbers to 60.

Took a look through previous acquisitions - added around 50% more practices in the 2.5 years since listing and added 55% to revenues, 52% to NPAT over past 2 years, but only diluted equity by 12.5% more shares. Not bad for a roll-up. Some of it achieved through debt funding - debt levels almost doubled from $8.5m to $16.0m. However, still looks manageable.

Whether or not this acquisition turns out to be dilutory will depend on price and structure. However, based on history, it seems likely to be strongly eps accretive and I would expect it to push NPAT into the $5-$6m range on a FY basis.

Market cap still under listing value at $21m. Seems to be a few sellers around still though.

[Lizard]

Seems to be a few sellers around still though.

Recent selling seems to have dissipated. Now strong bid level at 85cps. Might be ready to resume uptrend.

[Lizard]

Just got around to opening my backlog of mail today and found a "shareholder discount card" which gives me 10% off at Greencross - could have been really useful if I'd lived in Oz, especially given the amount I've spent at the vets this year!

Now 92cps. Pretty happy with this one so far.

[contrarianinvestor]

Just got around to opening my backlog of mail today and found a "shareholder discount card" which gives me 10% off at Greencross - could have been really useful if I'd lived in Oz, especially given the amount I've spent at the vets this year!

Now 92cps. Pretty happy with this one so far.

I love animals but live in an apartment, hence no use for the card for me too. This is one of my favourite businesses, both in good and bad economic times. I hope management can manage this company's growth welll and not end up like ABC childcare with too much debt. So far it looks like they know what they are doing. The current price looks like good value. This investment has the potential to become a 10 bagger.

[Lizard]

Well after an initial brief run up, this one is back at 69cps and recently raised capital (plus shareholder spp that is unlikely to be hugely supported) at 70cps.

FY results is a bit lower than I'd have hoped for - seems to be a bit seasonal, as second half generally lower. However, they've still paid down a bit of debt and nothing too worrying in the accounts. Also note that the only expense that seems disproportionately higher second half is "other", coming in at $1.2m - I wonder if this is partly due to costs of the failed Babtec acquisition. With only about $0.8m NPAT in second half, it has certainly made a bit of difference. Combined with about $2m less revenue second half, this probably explains why first half profits don't extrapolate neatly.

Ignoring recent share issues to fund expansion in 2011, P/E is 6.2 and EV/EBIT about 6, so still seems cheap unless there is something more sinister going on than is apparent.

[Lizard]

GXL has now picked up a practice in Caloundra and about half of the Babtec owned clinics (the Melbourne half) that they were said to be acquiring earlier. Price looks fair, although some are not full equity, so it is not clear whether the EBITDA figures are equity accounted or assume 100%. However, based on logical reading, would suggest constant-operation result of $3.7m NPAT for FY11, or forward PE of 5.5 at current price (69cps) and presuming minimal dilution from the recent spp, but inclusive of 3.85m placement.

Taking all placement/dilution/acquisition/potential additional borrowing into account, I still figure these should be trading closer to $1/share.

Interestingly, a SSH was also filed today from small institutional buyer, JM Financial. Not sure how they managed to acquire 5% in about 3 weeks without moving the price, but well done to them anyway (there haven't been any SSH sellers disclosing, but perhaps a good chunk came from placement).

[Lizard]

Still have a few of these and am waiting with interest for HY result. All being well, I would have thought a decent increase over last year with various additions. However, share price has had the drip-drip water torture selling, so it's difficult to be too optimistic. By my calcs, forward P/E is about 5.7 at 68.5cps (presumes FY $3.8m NPAT).

Pays a div, but carrying a largeish debt facility c.f market cap.

[Lizard]

By my calcs, forward P/E is about 5.7 at 68.5cps (presumes FY $3.8m NPAT).

Result announcement included a forecast of $3.4-$3.7m NPAT for FY, although half year was slightly down (last year was a strong first half). Div is up and annual div total forecast at 6cps, so will make it a good yield.

I got the courage to pick up some more at 70cps prior to announcement when the selling lost pace and buy side firmed. Now sitting 87cps with a much healthier buy side, but still pretty illiquid. My valuation currently at $1.02, but if the share price can pick up to around or above, then more acquisitions may be possible with less dilution.