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WAM Capital Limited (ASX:WAM) just invested in Greencross Limited (ASX:GXL)

I think following some of the top-performing manager’s investment moves can be a decent strategy because it could mean finding one of the next best-performing ideas.

After the market closed yesterday, WAM Capital Limited (ASX: WAM), WAM Leaders Ltd (ASX: WLE) and WAM Active Limited (ASX: WAA) announced that a few members of the Wilson Asset Management (WAM) listed investment company (LIC) group had taken a 5.2% stake in Greencross Limited (ASX: GXL).

This investment amounts to over $27 million, which isn’t a huge position for the WAM LICs but is still a large investment in most people’s books.

I only just wrote yesterday about how Greencross could be a top performer over the next 15 months. The new CEO has cleared the accounting decks by writing off and writing down a number of items that perhaps should have been written-down earlier.

Greencross is still generating very pleasing sales growth, particularly like for like growth. Most retail businesses would be very happy with a 4.5% increase in like for like sales.

Aside from the write-offs, the market has been worried how online retailers could hurt Petbarn’s margins. However, Petbarn itself has a strong online presence with Australian online sales growing by 92% in its half-year result.

One main worry for me from the trading update announcement around two months ago was that standalone vet like for like sales decreased by 2.8% because of a 4% decline in visit numbers. Management didn’t state why this was – perhaps the co-located vets were cannibalising sales or perhaps competition from other vets like National Veterinary Care Ltd (ASX: NVL) is heating up.

Whatever the reason, Greencross will try to solve the problem by improving the retail cross referral program, an increased focus on its Healthy Pets Plus membership, new partnership arrangements with the New South Wales & Victorian police, targeted de-sexing & seniors campaign and an uplift in digital marketing. Management said that vet visits had stabilised.

Foolish takeaway

Greencross is currently trading at 12x FY19’s estimated earnings with a grossed-up dividend yield of 6.3%.

The WAM LICs seem to be confident as they have been buying shares regularly since 18 May 2018. I can see why the WAM investment team is interested and if I didn’t already own shares of Greencross I’d heavily consider buying some at this price.

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Motley Fool contributor Tristan Harrison owns shares of Greencross Limited and NATVETCARE FPO. The Motley Fool Australia owns shares of and has recommended Greencross Limited. The Motley Fool Australia owns shares of NATVETCARE FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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