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National Vet Care(ASX:NVL): why we own it

National Veterinary Care Limited NVL

GICS Sub-Industry Health Care Equipment & Services

Current Price $2.66

Market Capitalisation ($M) 129.06

As of 11/09/2017 16:00 AEST

What do they do?

National Veterinary Care (ASX:NVL) is a leading provider of veterinary services in Australia and New Zealand. NVL was listed in 2015 with a foundation portfolio of 34 veterinary clinics and businesses including general practices, emergency centres and a pet crematorium. Since then, NVL has acquired and integrated a number of other veterinary services businesses across Australia and New Zealand to take the company’s current portfolio to 56 facilities.

The business’ growth is heavily driven by acquisitions, and NVL has recently undertaken a $14.6 million capital raising to support its acquisition pipeline. NVL’s strategy is to continually acquire established, profitably veterinary clinics that will enhance existing established geographical clusters, eventually hoping to consolidate a highly fragmented market.

Organic growth at clinic level is driven by engaging with the industry and the professional development of practitioners in existing practices in order to improve existing practices.

What do we like?

We recently caught up with NVL’s CEO Tomas Steenackers following the FY17 result, and note a number of positive indicators for the company.

1. FY17 Result

NVL reported FY17 revenue of $66.8 million (up 51%) and underlying EBITDA of $12.1 million (up $58%). EBITDA margins were at 18.1% and we were pleased to see the company declare its first dividend a mere 2 years after listing. Net debt to equity was pleasingly only 17%, suggesting significant capacity for acquisition activity as per management expectations.

Management expects FY18 revenues to be 25% higher than FY17, with EBITDA margins expected to be in line. Pleasingly, 95% of FY18 EBIT is now locked in following the seven acquisitions NVL announced for the start of FY18 and dependent on the number of acquisitions, FY18 results may well be above forecasts.

2. Acquisitions pipeline and expected synergies

Tomas has stated that in addition to the existing 56 facilities, another 4 extra clinics will be added to the portfolio in September to arrive at a total of 60. The business is aiming to acquire 6 to 10 new clinics in FY18 in order to bring the portfolio total to 70 practices. NVL typically targets vet practices with $1.5 million turnover, and management has stressed that synergies are expected to be realised from FY19 onwards.

Given that there are between 2200-2800 clinics in Australia, and NVL’s market share is currently less than 2%, there is significant room for growth through industry consolidation.

3. The Wellness Program

We particularly like the strength of the company’s Wellness Program, which is a subscription-based membership program for pet wellness. Members can either pay $430 upfront to join or $30/month to get value-added services such as free consults, vaccines and dental care. This service marks the company’s attempt to move veterinary care from a reactive to proactive service.

Membership growth was 143% over FY17 with a retention rate of 84% for 11,700 members. Given that the Program is only promoted across 43 clinics, management intends to promote the program in an extra 15 clinics this year to reach its target of 20,000 members. Member average net spend increased 94% as a result of members visiting 3-4 times a year as opposed to once a year when the Program first launched.

4. Management Team

NVL has a highly experienced risk management team: Tomas Steenackers is CEO and has extensive experience in senior management roles across pharmaceutical, retail and pathology sectors with the likes of Greencross and Mayne Pharma. Jason Beddow is the CFO and has extensive experience in senior financial roles with private equity and listed companies in the health and pharmaceuticals sector.

Glennon Capital does own NVL Group in the portfolio.

As of the 11th September 2017 this information is accurate. Glennon Capital holds shares in NVL Group for client portfolios. The information contained in this article or video is general in nature and does not consider your personal financial situation. The information is not a recommendation or offer to buy securities. You are advised to seek professional financial advice prior to making any investment decisions. The views expressed in this article may change at any time, such is the nature of the investment markets.

Any information has been prepared for the purpose of providing general information only, without taking account of any particular investor's objectives., financial situation or needs, It is not an offer or invitation for subscription or purchase, or a recommendation of any financial product and it is not to be relied on by investors in making an investment decision. Past performance is not a reliable indicator of future performance. To the extent any general financial product advice is provided in this document, it is provided by Glennon Capital Pty Ltd ACN 137 219 866, AFSL No. 338 567. An investor, before acting on anything construed as advice, should consider the appropriateness of such construction and advice having regard to their objectives, financial situation or needs.

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