Greencross sees 35% growth in profit

Greencross Limited (ASX:GXL), Australia’s leading veterinary services company, has reported a 34.8% increase in revenues for the 2013 financial year.

On the back of a 30% jump in revenues to $106.7 million, thanks to a spate of acquisitions as well as organic growth, Greencross has seen earnings per share rise 22% to 18.7 cents, from 15.4 cents the previous year. Same clinic revenues grew earnings before interest and tax (EBIT) by 10.3% for the year.

The company operates under the so-call ‘roll-up’ model, where it acquires individual veterinary practices paying around 3-4.5 times historical earnings, and then utilising its scale and operational efficiencies to grow revenues.

It’s a highly fragmented market, with 2,600 practice locations across Australia, and Greencross has a market share of just 4-5% of the total market, so there’s plenty of room to grow. The company acquired 19 properties including a pet cemetery and two crematoriums during the year, as well as opening a new veterinary hospital at Morayfield in Queensland.

The company now owns 97 practices, laboratories and crematoria around Australia, and has expanded recently expanded into health insurance. Dentistry services company 1300 Smiles Limited (ASX:ONT) has a similar preventative health care plan, where customers pay for basic coverage on a monthly or annual basis to get a number of free checkups and discounts off other services. Greencross has a plan for pets, which aims to give our pets a happier, healthier and longer life, while at the same time adding stable, recurring revenues.

With cash on hand of ~$8.8 million and an untilised acquisition funding facility of $10.2 million, Greencross has plenty of funds to hit its target of 12 new acquisitions next year. A pleasing note was that net debt / equity fell from 78% to 55% by the end of June, and the company says it is rapidly moving towards ‘self-funding’ acquisitions which will see acquisition funding driven by free cash and vendor deferred payments.

Foolish takeaway

Over the past year, Greencross shares have more than doubled, compared to the ASX 200 Index’ (Index:^AXJO) (ASX:XJO)return of around 18%. Trading on a P/E ratio of ~30 times earnings, investors expect Greencross to continue to deliver consistent earnings growth. Barring anything unforeseen, Greencross may well live up to expectations.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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