What: Veterinary services and pet retailer Greencross Limited (ASX: GXL) has today released its results for the year ending 30 June 2014, unveiling a net loss of $127.78 million and revenues of $368.93 million – a 41.4% rise compared to FY13.
Greencross also filed a separate note with the Australian Securities Exchange requesting its shares be entered into a trading halt pending the announcement of an underwritten sell-down to institutional investors by TPG Star of 16.6% of the shares on issue. The trading halt is aimed at letting the market absorb the news and ensure an orderly market in Greencross shares when trading resumes.
So What: I have long been bullish on Greencross Limited. The company is taking Australia's pet industry by storm with its roll-out strategy, whereby it is acquiring smaller businesses in order to expand its own share of the market. Its recent acquisition of retailer City Farmers is estimated to have taken its Australian market share to roughly 7.5%.
Clearly, a $127.78 million loss doesn't look good at first glance, but if you look a little deeper it seems quite reasonable. The loss was a result of a previously flagged impairment charge which related to its merger with Mammoth Pet Holdings back in February.
On a pro-former basis however, Greencross' full-year net profit would actually have increased by 45% to $21.6 million. It is also pleasing to note that the impairment charge was to the accounting segment of Goodwill, and has not arisen from any business underperformance. Nor does it have any impact on Greencross' ability to pay dividends.
Over the year, Greencross grew its retail store network by 21 to 135 stores while it made 18 vet acquisitions, taking its vet network to 111 clinics.
Here are some other important highlights from the report…
- Statutory revenue rose 41% to $368.9 million
- Statutory EBITDA rose 8% to $27.8 million
- Underlying earnings per share (EPS) of 24 cents per share (cps)
- Final fully franked dividend of 7 cps (total dividend for FY14 was 12.5 cents)
- The company's founder and chief veterinary officer Glen Richards will step down from his role in March 2015. He will remain as a non-executive director.
Now What: Greencross' lofty valuation (P/E ratio of 41.7) seems to be justified considering the strong growth forecasts for the near future. It has forecast EPS growth of 50% to 36 cps for FY15 while it plans to open at least 15 new retail stores and up to $20 million worth of veterinary clinics over the year too.
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Greencross is a very attractive business and could well be one of tomorrow's blue chips. However, while its valuation is justifiable, it is by no means trading in "bargain" territory. The Motley Fool's top analyst, Scott Phillps, has recently uncovered another ASX stock which appears to be much cheaper, while it still offers enormous growth potential and a fat, fully franked dividend.