National Veterinary Care Ltd (ASX: NVL) rose by 7.53% today and 4.29% yesterday. The share price has more than doubled since it listed in August 2015 and I think it could go on to grow into a sizeable business.
The business has been on a steady acquisition spree since it first listed and recently announced that it will be acquiring four more clinics that will add $4.5 million of revenue and $0.79 million of earnings before interest and tax over a 12 month period. Management expect that these clinics will be earnings per share (EPS) accretive in FY18.
The pet industry is a good one to operate in with a growing pet population, humanisation of pets and increased take-up of pet insurance. Around three quarters of dogs and two thirds of cats go to a vet each year. All of these factors were major reasons why general practice organic growth was 4.2% in FY17.
The wellness program called 'best for pet' has been very successful for National Vet Care. It now has around 14,000 members which represents growth of about 30% since 1 July 2017. Members' average spend reportedly increases by 94% after joining the program.
National Vet Care reported that it generated 8.46 cents basic EPS and 11.38 cents underlying EPS in FY17. The difference between these two figures is the acquisition and other one-off costs. This suggests that with no other acquisitions in FY18 it would have shown growth EPS growth of around 34%.
However, management have predicted that statutory revenue will likely grow by at least 25% in FY18, which means that FY18 could be another bumper year for the company.
Foolish takeaway
National Vet Care is currently trading at 28x FY17's underlying earnings, which I think is a reasonable price to pay for a business that may grow at a strong rate over the next few years.
