Overview: Investor expectations were high for the Ebos Group Annual General Meeting (AGM) this week. In the two months preceding the AGM, the share price rose 28 percent as investors started to buy into the Ebos growth story. The 2013 acquisition of Australian medical supplies wholesaler, Symbion, is helping Ebos achieve their growth ambitions.
Pros: Growth was the theme of the AGM, with CEO Patrick Davies noting they “are confident of delivering another year of double digit constant currency profit growth for our shareholders in FY16.” This was one of 11 times he mentioned growth.
Ebos operate two segments, Healthcare and Animal Care. Both reported increases in Revenue and profit for 2015, and look good to continue that momentum in 2016. Both boast defensive qualities as spending on healthcare and animal care is non-discretionary for most households.
When breaking the business down from a geographical perspective, it becomes clear how important the Australian operations are for the Company. 81 percent of Company earnings are in Australian dollars.
Cons: The AUD/NZD exchange rate is obviously going to impact earnings for Ebos, which is why they were careful to use “constant currency” when talking about growth. The company manages this risk by using currency hedging contracts, and by maintaining approximately 80 percent of their debt in Australian.
Regulatory risk is always a factor to consider. In Australia this risk has waned due to the 6th Community Pharmacy Agreement being signed in July this year. This will run through to 30 June 2020, and has essentially held the status quo for the industry.
Price performance: The share price hit all time highs of $14.05 in the week leading up to the AGM. This is a 42 Percent rise for the year. The elevated share price was taken advantage of on Thursday when companies associated with long term director and Ebos shareholder Peter Kraus sold 5 million shares at $13.30.
Investment outlook: The recent run up in the Ebos share price is testament to investors’ confidence in the Ebos growth story. The Company will now need to maintain their growth, to maintain and grow their share price.
*A Broker's View is written by Grant Davies, Investment Advisor at Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through www.hhg.co.nz.