Motley Fool Australia

Is this small cap a good ASX growth share?

vet

National Veterinary Care Ltd (ASX: NVL) has announced some news today that may excite some investors, although the share price is currently down 2%.

This morning the veterinary business told investors that it has entered into a binding agreement to acquire two more veterinary clinics in New Zealand. There are a few conditions, but settlements are expected to take place within the next month.

The new clinics are close to other National Veterinary Care clinics in New Zealand and are expected to deliver total annual revenue of approximately NZ$3.65 million and total annual earnings before interest and tax (EBIT) of approximately NZ$0.76 million.

National Vet Care revealed that the total acquisition cost will be NZ$3.94 million, with a NZ$3.25 million payment upfront.

The company’s managing director Tomas Steenackers said “Following our acquisition of Pet Doctors group in New Zealand late last year, these acquisitions will complement our New Zealand presence in key areas and will be supported by the existing operations team that was established at the time Pet Doctors was acquired.”

If these two clinics are acquired it will bring National Veterinary Care’s total network across Australia and New Zealand to 99 clinics.

It is certainly catching up to Greencross in terms of total clinic numbers, but only time will tell which veterinary business will be the largest in five years.

Foolish takeaway

I do think that National Vet Care can grow to at least 150 clinics, if not 200 or more, so there is scope for continued growth. However, in recent months I’m not as excited about the potential long-term shareholder returns.

The FY19 and perhaps FY20 results are likely to show impressive growth, but after that the ongoing organic revenue growth of existing clinics may remain at around 3% or less, so I would only want to hold it for a few years to try to outperform the market during the acquisition phase rather than owning it for a couple of decades or longer.

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Returns as of 6th October 2020

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of NATVETCARE FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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