GXL - Greencross Limited

[System]

Greencross Limited (GXL) is an Australian-based veterinary services company through the acquisition and integration of 43 practices around the country.

http://www.greencrossvet.com.au

 

[DVEOUS]

Re: GXL - Greencross

So what's with the trading halt?

I only bought 1,100 shares last year for the 10% share holder discount at my local GXL vet... so I haven't really followed the company that closely.

 

[robusta]

Re: GXL - Greencross

Now I am curious, GXL emerged today as a substantial holder of a very illiquid business I have in my portfolio. KAM, I will have to do some digging and see what the go is. Looked at GXL a while ago but the debt scared me away.

 

[McLovin]

Re: GXL - Greencross

Interesting. I had a look at GXL about six months ago, it just seemed like a mini-ABC. From what i wrote at the time: NPAT had grown 35% but EPS only 5.5%. It's a low growth industry. They have made some claims about being able to extract savings by centralising buying but it hasn't really materialised yet. Payroll costs were rising as % of revenue. I guess they are trying to sell it as sort of steady earning industry that can wear higher debts. Anecdotally, from what I saw online, they are also more expenisve than most other vets.

Based on that I avoided. I haven't seen this year's report. I'll have to have a look.

 

[Vader]

Re: GXL - Greencross

Now I am curious, GXL emerged today as a substantial holder of a very illiquid business I have in my portfolio. KAM, I will have to do some digging and see what the go is. Looked at GXL a while ago but the debt scared me away.

Other way around Robusta... KAM now own 5% of GXL.

 

[robusta]

Re: GXL - Greencross

Other way around Robusta... KAM now own 5% of GXL.

My bad that does make more sense. May be worth me looking at this business again however.

 

[Vader]

Re: GXL - Greencross

Interesting. I had a look at GXL about six months ago, it just seemed like a mini-ABC. From what i wrote at the time: NPAT had grown 35% but EPS only 5.5%. It's a low growth industry. They have made some claims about being able to extract savings by centralising buying but it hasn't really materialised yet. Payroll costs were rising as % of revenue. I guess they are trying to sell it as sort of steady earning industry that can wear higher debts. Anecdotally, from what I saw online, they are also more expenisve than most other vets.

Based on that I avoided. I haven't seen this year's report. I'll have to have a look.

FY12 figures were NPAT +40%, EPS +35% (forecast of +15% for FY13)

Net debt to equity of 80%, so it's not quite in the ABC territory... not yet anyway. I hold some at the moment (up just over 11% in the short time I've held it)... but yes, I did notice the ABC parallels too.

They are looking at adding approx 12 vet practices a year to their group, so definitely need to keep an eye on performance, net debt etc.

...also (for what it's worth) got a shareholder benefits card from them a few days ago to, anyone with more than 1000 shares gets 10% discount on all vet services, products and retail items at any of their practices.

 

[McLovin]

Re: GXL - Greencross

FY12 figures were NPAT +40%, EPS +35% (forecast of +15% for FY13)

Net debt to equity of 80%, so it's not quite in the ABC territory... not yet anyway. I hold some at the moment (up just over 11% in the short time I've held it)... but yes, I did notice the ABC parallels too.

They are looking at adding approx 12 vet practices a year to their group, so definitely need to keep an eye on performance, net debt etc.

...also (for what it's worth) got a shareholder benefits card from them a few days ago to, anyone with more than 1000 shares gets 10% discount on all vet services, products and retail items at any of their practices.

This year's result doesn't look that crash hot either. Debt up by 50%, interest coverage is now just a shade over 3x. Payroll costs as % of revenue continue to rise. How much of the EPS gain can be attributed to using debt to fund acquisitions this year, rather than equity?

They don't actually seem to be getting ahead with all these purchases, just building a bigger empire. And the PE of 16 makes me dizzy.

My.

 

[Ves]

Re: GXL - Greencross

The debt is way too high for me. It's about 3x EBITDA. And the interest coverage is pretty tight as McLovin said, which may be OK in an environment with lowering interest rates, but they can go up pretty quickly without warning if the economy does a u-turn.

Looking at the investor presentation organic revenue growth was 1%. I don't see why you would pay 6 times earnings for this business because they rely on acquisitions (funded by debt moreso than cash flow) to fuel earnings growth & it has no obvious competitive advantage. The business model could be especially dangerous in a heavily regulated industry like this one.

edit: Also watch out for the deferred settlement of practice acquisitions. This went up substantially last year and it looks like they plan to purchase many more so it has not yet peaked.

 

[Ves]

Re: GXL - Greencross

As an aside, what happens to the previous practice owners once GXL owns these practices? We take our dog to one of the local vets because we like the way they care for him. I think there is a valid concern if the previous vets / owners do not continue working in the practices that GXL has sold... there is a lot of "human goodwill" in this industry.

 

[Vader]

Re: GXL - Greencross

Point(s) taken guys... they expect the level of debt to grow over the next 6 months before free cash flow starts to overtake it - so will definitely be keeping an eye on that.

...and I completely agree that if we get serious problems with the economy (more serious than we've already got, lol), then they could find themselves in big trouble really fast.

$2.35 was my entry price, and the dividend was paid last week...also got a few of the vets not that far from me, so may even get use from the shareholder discount card. For the time being I'm happy to keep it chugging along, but have a stop in place at $2.49 (just below a group of buy orders) in case things drop back that far.

 

[skc]

Re: GXL - Greencross

Interesting. I had a look at GXL about six months ago, it just seemed like a mini-ABC.

Sums it up pretty well... but minus the fraud one would hope.

Valuation was pretty attractive 12 months ago when I looked at it. But the empire-building / industry consolidator play rarely works out. Plus I see little synergy in vet practices.

Re debt... I think vet surgeries are pretty recession-proof, and vets themselves are not that demanding. So may be it can take on higher debt...

 

[McLovin]

Re: GXL - Greencross

Sums it up pretty well... but minus the fraud one would hope.

Of course. And lest I have the company trying to track me down to slap a summons on me, I wasn't implying that at all.

 

[Vader]

Re: GXL - Greencross

but have a stop in place at $2.49 (just below a group of buy orders) in case things drop back that far.

Probably not a smart thing to do, but rethinking it all, I've taken the stop away for the moment - the DRP price just paid out was $2.50, so that's probably explaining a bit of the drop in price over the past few days, I'm sure some people are making a quick profit out of that... so unless there is an adverse fundamental change, I'll just keep an eye on things, there still seems to be a fair bit of interest in the stock.

 

[Country Lad]

Re: GXL - Greencross

This has given plenty of buy signals on the way up. I have been stopped out twice before it continued up on its merry way. This time I may relax the stop a bit.

Cheers
Country Lad

 

[craggles123]

Re: GXL - Greencross

Hi All,

Any of the more experienced have any extra opinions on this company?

Has a reasonable level of debt but seems to be performing reasonably well.

Has been on the up for quite some time, running out of steam maybe?

 

[Country Lad]

Re: GXL - Greencross

I was trying to keep an eye on this one today, but a bit difficult to gauge the market sentiment with the bots working overtime.

41.3% of the trades were less than 5 shares.
Only 11.1% of the trades were more than 50 shares.

Cheers
Country Lad

 

[Tano]

Re: GXL - Greencross

Where do you get this info from? Is it the market depth? Does market depth also show pre open orders?

I was trying to keep an eye on this one today, but a bit difficult to gauge the market sentiment with the bots working overtime.

41.3% of the trades were less than 5 shares.
Only 11.1% of the trades were more than 50 shares.

Cheers
Country Lad

 

[Country Lad]

Re: GXL - Greencross

Where do you get this info from? Is it the market depth? Does market depth also show pre open orders?

The day's sales from the live data system I use. Yes. it also gives market depth and pre -open. See the details here.

 

[skc]

Re: GXL - Greencross

Interesting. I had a look at GXL about six months ago, it just seemed like a mini-ABC. From what i wrote at the time: NPAT had grown 35% but EPS only 5.5%. It's a low growth industry. They have made some claims about being able to extract savings by centralising buying but it hasn't really materialised yet. Payroll costs were rising as % of revenue. I guess they are trying to sell it as sort of steady earning industry that can wear higher debts. Anecdotally, from what I saw online, they are also more expenisve than most other vets.

Based on that I avoided. I haven't seen this year's report. I'll have to have a look.

12 months on the stock is up 150% to $6. Trades at a lofty PE of 70x reported EPS of 8.54. Management said underlying NPAT was $6.4m so EPS is 17.1c - still 35x.

They said they plan to acquire 1-2 practices per month at EBIT multiples of 3-4.5 times. GXL itself trades at 18x.

Not sure how this disconnect works?!

It's hard to see how one make excess return on GXL at this level.