Readers may have seen my articles on National Veterinary Care Ltd (ASX: NVL) ("NVL") six weeks ago when I took a brief look at the prospectus and potential of this veterinary hopeful.
Although I wrote at the time that I was considering breaking my usual policy to participate in the Initial Public Offering (IPO), I didn't end up doing so. This was for two reasons – National Vet Care took longer to launch than I expected, and I managed to buy Greencross Limited (ASX: GXL) in the meantime for the bargain price of $5.17.
Greencross has since soared some 39% and is no longer the screaming buy it was (though it's still good value) back in July. As a direct result of Greencross' strong performance and lack of apparent cheapness, I'm expecting enthusiasm for National Vet Care shares to run high tomorrow.
In my earlier article I wrote that NVL looked to be priced well, trading on a forecast Price to Earnings (P/E) ratio of around 10.9. The addition of several ex-Greencross staff to its board is a positive and will be necessary to help the company find its feet.
While well priced and having an attractive premise – rapid growth both organically and by acquisition – the risks are also quite high.
'National' Veterinary Care in fact only owned one clinic up until recently, as most of the IPO funds went towards securing a further 35. This presents high integration risks and extremely high 'key personnel' risks as it would appear much depends on ex-Greencross managers' experience at larger companies.
Sudden departure of these personnel and/or problems associated with the acquisitions are among the most immediate risks, though there are several others like failing to grow organically as anticipated.
National Vet Care won't be entering the retail sector which is a positive for some investors, but this also precludes many cross-selling opportunities which have been so vital to Greencross' strong performance in recent years.
Nevertheless, interest in vet providers is running high right now and I wouldn't be surprised to see National Veterinary Care soar on listing tomorrow.
