With it now abundantly clear that Australians who moved away from capital cities at the start of the pandemic have zero intention of returning to traffic jams and shoebox apartments, institutional investors have seen the light by backing regional vet operator Apiam Animal Health (ASX: AHX) to deliver on their ambitious regional expansion strategy.
Over the past 12 months, Apiam has acquired 14 veterinary clinics around Australia in regional towns which takes their national footprint to 72, employing more than 1,000 staff.
What started off as a small network has now grown to the point where Apiam is Australia’s largest service provider animal health services in regional Australia where new clinics entering the network are benefitting from their hub-and-spoke infrastructure and organic growth initiatives.
For the half year ended 31 December 2021, Apiam Animal Health reported $75.1m in revenue which represented a 22.7% increase on the previous year. This delivered gross profit of $46.2m, a 32.5% increase.
In his results presentation, Apiam Managing Director Dr Chris Richards declared plans to deliver $300 million in annual revenue by 2024 which would require doubling of their current run rate in the space of just 2 years. Such ambitions, however, have become much more achievable with population in regional cities that commenced at the start of the pandemic – sustaining two years on with many of those new residents showing zero intent of returning to capital cities.
“Our clinics have never been busier than they are today, reflecting not only the increase in pet numbers that occurred during the pandemic, but the demand for ongoing care during all stages of the lives of our pets,” said Dr Richards.
According to REIV data – with Victoria being the State where Apiam has its largest presence – the median house price in metropolitan Melbourne over the past 12 months from $1.01m to $1.12m in March 2022, a 10.8% increase.
Comparatively in Regional Victoria over the same period, the median house price increased from $470k to $595k – a 26.6% increase. This has reflected faster population growth and higher demand for housing in regional cities where Apiam is strategically located with its central hubs in peri-urban towns.
Keen for a slice of this action, as part of Apiam’s fully underwritten $20.25m Entitlement Offer, an accelerated institutional offer has seen investors back Apiam’s latest capital raise to the tune of $11.9 million which will be applied to their latest acquisition of Victorian Equine Group, and other clinics being targeted by Dr Richards. The fully underwritten Retail Entitlement Offer commences on 2 June 2022 to increase those funds from the raise to $20.25m, which with strong cash flow and debt facilities has Apiam on track to execute on its accelerated growth strategy.
Included in the capital raise where Shaw and Partners and Morgans Corporate acted as joint lead managers, was Dr Richards himself who participated with $4.5 million himself in a clear show of confidence behind Apiam’s ambitious growth prospects.
“We are very pleased with the strong support in the institutional component of the entitlement offer from existing and new institutional shareholders endorsing our planned growth strategy,” added Dr Richards.
“We look forward to executing on further growth opportunities and business initiatives in the months ahead”.
Prior to the pandemic, Apiam’s large regional presence meant that the majority of their revenue was generated from the production animal segments but in the past three years, their revenue mix has changed noticeably.
In many cases, migration out of the capital cities is seeing residents bring pets with them or adopt them for the first time which now makes companion animals the fastest growing segment for Apiam. A 2021 report by Animal Medicines Australia identified that pet ownership in Australia increased by 15% during the pandemic but Dr Richards suspects that figure reaches 20% in some regional hubs based on Apiam’s rapidly increasing customer base.
In addition to growth in companion animals, Apiam has also seen major growth in their equine services where horse racing is seeing record levels of investment from State governments and industry participants. The increased spending has been reflected in the major thoroughbred yearling sales of 2022 where global investment in the Australian industry sent the median sale price at the five biggest yearling sales up by 25% on last year.
With such strong industry tailwinds fueling Apiam’s growth both by acquisition and organically where their leaders are backing the company with their own investment, it should come as no surprise to see institutional investors open their wallets in this latest raise.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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