IOOF Holdings Limited (ASX: IFL) is one of Australia's largest wealth businesses. It offers financial advice, superannuation, investment management and trustee services.
It has to make good long-term investments to generate good earnings for its various funds for people's wealth and retirement.
One of its latest investments is its three million shares of National Veterinary Care Ltd (ASX: NVL).
National Veterinary Care is one of the largest veterinary clinic businesses in Australia it has 64 clinics, with eleven of those acquisitions settled in this financial year alone.
It isn't just a random assortment of veterinary clinics. Management are strategically acquiring clinics in geographical clusters to grow economies of scale.
It has a wellness program called 'Best for Pet' which aims to get people into an annual check-up service, but it helps that member spend increases by more than 90% after joining the program. The current membership retention rate is 79% and there has been a 23% growth of members since the start of FY18.
In its half-year result to 31 December 2017 it revealed revenue growth of 27.8%, statutory earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 12.8% and earnings per share (EPS) growth of 12.3%. Investors were expecting a bit more with the share price dropping from $3.15 at the start of the year to today's $2.48.
The full year 2018 financials should show good growth, management are expecting revenue growth of more than 25%, the EBITDA margin will be between 16% to 17% and it will pay a full-year dividend.
It's taking a number of initiatives to increase future revenue, margins and decrease costs. One example is that it's training its vets to be higher skilled so that it makes less referrals outside of National Vet Care clinics.
The defensive and growing earnings of the vet business makes it appealing to me.
Foolish takeaway
If you take a long-term view on National Vet Care it should be able to keep growing at a market-beating rate. I think it's one of the best small caps on the ASX, that's why I'm looking to buy more shares over time if it continues to deliver on its growth plans.
I'd be very happy to buy shares at today's price, but I'm keeping my eye on its competition as other vet groups are also growing.
