Greencross Ltd (GXL) is an Australian-based veterinary services company providing veterinary care, disease prevention, and advice across all practices. Its veterinary services consist of pet retail and wholesaling, laboratories and boarding & grooming facilities.
The veterinary services businesses are divided into:
- General practice, which offer consultations and associated diagnostics capabilities and general practice medical and surgical treatment options;
- Emergency Centres, which provides full animal hospital facilities for after hours care and treatment of sick pets; and
- Specialist Centres, which provides specialist veterinary care including medicine, surgery, animal behaviour, dermatology, cardiology, ophthalmology and dentistry in a full scale specialty animal hospital
A big reason for GXL’s huge share price gains has been its growth-via-acquisition strategy – the group has acquired 36 pet care clinics over the past two financial years.
Similar to G8 Education (GEM), GXL is the dominant player in a highly fragmented industry with many small operators.
In mid-November the group agreed to acquire Mammoth Pet Holdings, which operates under the Petbarn brand in Australia and Animates in New Zealand.
The merger widens GXL’s visibility in the pet services market. In addition to being a vet clinic owner, Mammoth provides the group with a toehold in the lucrative pet supplies space.
The acquisition is expected to be earnings per share (EPS) accretive in FY14, with stronger EPS accretion expected in FY15.
Mammoth has delivered compound annual revenue and EBITDA growth of 22.6% and 25.4%, respectively over the past three years, similar to GXL.
These are huge numbers and the growth is expected to continue as Petbarn continues its store roll-out program of around 20 new stores a year.
Due to increased scale, GXL can expect to achieve post-integration cost synergies of $1.5 million in the first year alone.
Cross selling opportunities arising from a bigger customer base and the complementary nature of the two businesses are also anticipated to yield immediate revenue synergies.
Positive earnings outlook
GXL has enjoyed turbocharged growth in recent years. FY13 saw underlying profit surge 35% to $6.4 million and revenue jump 29.6% to $106.7 million.
Operating cash flow soared 31.8% to $10.8 million, allowing the group to issue a full year dividend of 10 cents, up 25% on-year.
The Mammoth acquisition is expected to provide a further significant bump in earnings and cash flow over the next couple of years.
In our view it will put GXL on the path to achieve its stated aim of growing market share from 4% to 20%.