For those unfamiliar with Greencross Limited (ASX: GXL), the company was established in 2003 with the aim of acquiring veterinary businesses across Australia. In 2007 the company listed on the ASX and has continued to grow and expand. The recent merger with Petbarn has created Australasia's largest integrated consumer-facing pet care company boasting a network of 130 stores and 102 vet clinics across Australia and New Zealand.
The acquisitive growth model of the company has certainly paid off for shareholders so far. In the past 12 months the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has recorded a gain of just 4.8%, in contrast Greencross' share price has rallied 129.5%.
Results
Greencross has just released its half-yearly results which again show strong growth primarily due to acquisitions. Revenues grew 24% half-on-half while underlying profits were up 28% half-on-half. More importantly for shareholders underlying earnings per share and the dividend both increased by 10%.
Valuation
Included in the half-year results presentation was guidance for full-year results to the 30 June 2014 on a pro-forma basis assuming the Petbarn acquisition had occurred on 30 June 2013. The pro-forma forecast is for a net profit after tax of $21.5 million and earnings per share of 23.8 cents per share. With the share price up 1% after the results release to $8.70 per share, the forecast pro-forma price-to-earnings ratio for FY 2014 is a hefty 36.5.
Outlook
Management describes the pet care market as still "highly fragmented and open for consolidation" with Greencross holding around a 5% share. Management believes the sector is growing at around 5% per annum and is targeting a 20% share of the market. Given management's aggressive acquisition rate and lack of listed corporate competitors it is not an unreasonable market share target.
Foolish takeaway
There are two companies which have also utilised "roll-up" strategies that make for interesting comparisons for investors. Primary Health Care Limited (ASX: PRY) has grown its business by acquiring and consolidation of general practices; while G8 Education Ltd (ASX: GEM) has set about consolidating the child care sector. While G8 is relatively young (like Greencross) and performing exceptionally well as it grows quickly from a standing start, Primary Health Care has underperformed the market over the past decade. My point is, roll-up strategies have a mixed history and should be approached with care.
