The National Veterinary Care Ltd (ASX: NVL) share price has risen by 70.7% over the last 52 weeks. It operates around 50 veterinary clinics across Australia & New Zealand and is planning to acquire more.
Its main competitor is Greencross Limited (ASX: GXL) which also operates vets but has retail stores such as Perbarn too. I like what Greencross is doing by co-locating vets and Petbarns together, but it has diluted the original idea of being a pure veterinary business.
National Veterinary Care just announced it is in the process of acquiring two clinics in Australia and two in New Zealand. These clinics are being acquired at around 5x earnings before interest and tax, which looks like good value to me.
Management expect these acquisitions to settle by 30 April 2017, which means they are likely to be earnings per share accretive in FY17.
These acquisitions will grow the number of clinics to 54 in total. It would be reasonable to expect that annualised revenue will be boosted by at least 8% by these acquisitions due to the amount of revenue that the new clinics are generating.
I think the strategy of acquiring vet clinics is a sound one. The number of pets in Australia is increasing alongside the rise of the human population, creating strong tailwinds for National Veterinary Care.
There is also an increase in the popularity of pet insurance, which makes owners more likely to consent to expensive pet treatments at the vet and create more revenue for the veterinary clinic.
Time to buy?
I think now could be a good time to buy National Veterinary Care shares and hold for the long term as it grows its vet market share.
If all acquisitions had been made on 1st July 2015 then the pro-forma earnings per share would have been 10.3 cents per share for FY16. This means it's trading at 20.4x FY16's full-year contribution from all clinics, which looks like a reasonable valuation to me. However, if this seems too speculative for you, then perhaps our number one dividend stock for 2017 would be a better alternative to invest in.
