Ebos Limited EBO

[winner69]

The PNZ acqusition was high volume low margin business.
It will be most important that future aqusitions are higher margins.
I see EBO have the distribution channels to add more profitable add ons to both human and animal health businesses.
When looking forward one must judge the company's history of success.EBO passes this test.
"You are better to pay a fair price for a good business they a good price for a fair business."

Thats why Masterpet is good for them .... a much higher margin .... might be able to learn something from how they work even if in different industries

Agree with your last statements .... no way am I deriding EBO ... as I said one of the few companies in NZ that have consitently earned in excess of their cost of capital ..... it's just I think that $7 is a not that fair price for a good company .... that guy also prob said pay too much for a good company and your future returns are diminished a bit .... or something like that

Was around at Masterpet the other day .... new bosses are very inteersted in how they operate but leaving them to their own devices at the mo

[percy]

Thats why Masterpet is good for them .... a much higher margin .... might be able to learn something from how they work even if in different industries

Agree with your last statements .... no way am I deriding EBO ... as I said one of the few companies in NZ that have consitently earned in excess of their cost of capital ..... it's just I think that $7 is a not that fair price for a good company .... that guy also prob said pay too much for a good company and your future returns are diminished a bit .... or something like that

Was around at Masterpet the other day .... new bosses are very inteersted in how they operate but leaving them to their own devices at the mo

EBO have a record of making people proud to be working in the EBO group,so I would think Masterpet staff will enjoy being part of the team.
Value. I find very difficult to time purchases of good companies.EBO is very hard.If I did not own them at present I would buy them.I was expecting divie reinvestment,but this is not going to happen with this divie.Would I sell any.Not under $8 if I were to sell any.It would only be because each time they go up I become over weighted as they are my largest holding.

[percy]

from Craigs research.
2011 actual PE 16.4
2012 estimated PE 13.4
2013 '' ' PE 11.1
2014 " " PE 10.6

[Silverlight]

Ebos has fantastic track record of acquisitions, but over $7 it looks fairly valued. They have historically been a low margin, high volume business, improving their margins from 2.0% to 3.5% over the last few years, while revenues move beyond 1bill to 1.5bill, and that has been their expertise.

While the price payed for Masterpet maybe be fair or undervalued, and Masterpet may benefit from Ebos’ management’s ruthless extraction of efficiencies, it is a high margin business (+20%), and high margin markets attract competition because they usually sell branded "generic" products, so there are low barriers to entry outside of a distribution channel. It also means in tough times people don't buy brands they buy cheap.

These are Ebos' biggest risks it takes on with Masterpet, either more competition erodes the margins, or continued slow down in the economy makes people look at what cat food they feed their cat, budget biscuits vs "Iams Premium I love my Kitten Fibre Plus with Chicken". Think Goodman Fielder, they got screwed by the supermarkets and their high margin generic products revenues got killed.

Ebos core business is quality with quality management, however, this new acquisition has increased their risk profile, and for some who have come to rely on their consistent performance and dividend growth, its future performance will be significantly more volatile, especially at a time when world markets are again looking to plummet and cause mayhem.

[winner69]

from Craigs research.
2011 actual PE 16.4
2012 estimated PE 13.4
2013 '' ' PE 11.1
2014 " " PE 10.6

So that implaies taking NPAT from $23m to $37m/$38m does it percy

[percy]

X Craigs.
Forecasts & ratios
2010a .... 2011a..... 2012e.... 2013e ..... 2014e
Net profit 25 ..... 23 ..... 27 ..... 33 ..... 34
eps .50 ...... .44 ..... .52 ..... .63 ...... .66
epsgrowth % 24.2..... -13....... 20.1..... 20.5 ..... 4.6
PER 11.9 ..... 16.4 ........ 13.4 ...... 11.1 ...... 10.6
DPS .31 ...... .52 ......... .34....... .41 ...... .43
EV/EBITDA[x] 7.2 ........ 9.3 ........ 8.4 ..... 7.9 ...... 7.6
Yield[net]% 5.2 ........ 7.2........ 4.9 ...... 5.8 ...... 6.1
sorry best i can do.
Net profit from 23m 2011 to 34mil 2014

[Snoopy]

Remember MVA is the present value of future economic profit streams - in EBO case this is about $40m which gives an implied market cap of $240m (current $360m)a

At the risk of getting all mathematical Winner, how have you calculated the present value of EBO economic profit streams at $40m?

SNOOPY

[winner69]

Snoopy - a bit mathematical but the NPV of future economic profit where economic profit is NOPAT (net oparating ptofit after tax) less a capital charge (to account for the capital used)

As with a lot of valuation methods is rather subjective .... like how much is EBO going to make in the future ..... what WACC do you use .... for EBO on reflection I maybe should use a lower number than I have used because debt is such a greater proportion of capital used ..... how fast will they reduce debt etc etc

And then there is what is the sensitivity of some key performance indicators .... like EBO is a low margin business (MAsterpet should improve that) ..... but if EBO took their EBIT margin to 4%-5% than all the number change and a shareprice of $7 is fsir enough .... but I would contend that buying at $7 now and the margins did double one would not be getting the benefits of that (it is built into the shareprice already?)

Rather like Buffetts approach one should be aiming at getting above average returns ...... If you ran you Buffett model on EBO I'm sure you would reach the same conclusion that $7 at the mo is a bit expensive if one wants 15% returns inti the future ( EBO peob wouldn't pass many of Buffetts tests anyway to get to the stage of running your model anyway) .... something to try out on your new computer?

Sometimes the easiest way is to see if shareprice is realistic is ask would you buy the company lock stock and barrow. At the mo $360m to buy the shares and I would be taking on $150m odd of debt ..... some $500m odd ..... what I get back ..... current EBO performance say $45 EBITDA and MAsterpet $20m EBITDA ..... EBITDA as a proxy for cash flow say $65m .... set aside a bit for capex and tax ..... and it all looks a bit rich .... even more so if a borrowed a bit to fund it. (EBO not likely to be taken over then?)

[winner69]

If somebody did take EBO out .... at a premium to the $500m needed .... one of the backstops to that strategy if things don't work out that well is that there is always a greater fool to take it off your hands .... that theory keeps the world going around

[voltage]

winner69, interesting comments and analysis. Is there an easy way to apply buffetts model to companies or do you need a strong financial background to do this. I wonder if he would pick andy companies on NZX or ASX.