The strength and impressive earnings growth of veterinary services and pet supplies company Greencross Limited (ASX: GXL) shows how investors can find great stocks by following expanding chain businesses as they grow from region to region.
After Greencross released half-year results showing high-double digit increases in revenue and net profit, the stock shot up 7.5% to $9.10 in afternoon trade. In mid-December shares had slumped to as low as $7.15, but have now rallied 27.3% in a little over two months.
Here are the half-year results highlights:
Revenue $307.5 million, up 34% from $214.5 million
Earnings before interest, tax, depreciation and amortisation (EBITDA) $41.6 million, up 62% from $25.7 million
Net profit after tax (NPAT) $19 million, up 81% from $10.5 million
Earnings per share 17.2 cents, up 48% from 11.6 cps
Dividend per share interim dividend of 8.0 cents per share, up 45% from 5.5 cps
Greencross recently merged with Petbarn and in the first half of financial year 2015 acquired 42 City Farmers pet supplies stores. In addition to the 19 net new stores year-to-date, the company has increased its retail store count by 61.
On the veterinary business side, Greencross has acquired about $27 million in veterinary practice acquisitions for financial year 2015 year-to-date. In the first half, eight practices and two pet crematoria were bought. Including acquisitions and investments made in the start of the second half, a total of 14 clinics were added.
All totalled, Greencross is now operating 321 locations, several of which are even co-located with a clinic and pet supplies store combined. That number has almost tripled from the 123 locations four years ago.
The pet care and supplies market is estimated to be worth about $9 billion in Australia and New Zealand with an average 4% annual growth rate. Greencross has very attractive growth potential itself since currently it only holds about 8% of its market.
Even if investors missed out on the early business and share price growth, Greencross' target is to control 20% of the market, so the growth story isn't done yet. The stock is trading at 24 times earnings, which is reasonably priced compared to the 18.8% forecast earnings growth over the next two years plus the fully franked 1.6% yield. I would suggest adding Greencross to your portfolio to take advantage of the possible business expansion to occur over the next 3-5 years.
