The Greencross Limited (ASX: GXL) share price declined after it reported, is it a buy?
Expectations play a key part in how the market responds to a company's report. If it's a good report but the market was expecting even more then the share price can go down.
Greencross shares declined by 3% on report day. As a reminder, here are some of the numbers it reported:
- Group revenue up 11%
- Group like-for-like sales growth of 4.5%
- Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) up 9%
- Underlying EBITDA margin down from 13% to 12.7%
- Underlying net profit after tax (NPAT) up 7%
- Earnings per share up 19%
- Underlying earnings per share up 4%
A mixed bag, but most of the numbers were positive.
The top line revenue growth and like-for-like (LFL) sales were impressive in my opinion. They are clear signs that the company's objective of being the number one pet company with a 20% market share is making progress.
The slight decline in margins and low increase in underlying earnings per share was the worst part. However, management were right to point out that it costs a lot of money to set up the Greencross vets inside a Petbarn and then it takes a few years to reach their full potential.
In the long-term this strategy clearly makes sense. It reduces costs, maximises revenue and allows each business to cross-sell services to other customers.
The problem is that the market is impatient and wants strong growth now, not in a few years.
Greencross is now offering almost anything a pet could need, in a variety of ways. It has standalone vet clinics, Petbarns, in-store vets, pet grooming, pet adoption, pet insurance and a fast-growing online site.
Is Greencross a buy?
I think it is a good, long-term buy. It's still growing today even though it's heavily investing for the future. It's growing its dividend and has a grossed-up yield of 4.63%.
Greencross is currently trading at 13x FY18's estimated earnings, which is cheap in my opinion.
