With business booming in response to a 20% increase in pet ownership amongst Australians during the pandemic, veterinary operator Apiam Animal Health (ASX: AHX) has continued its acquisition spree by adding 4 new clinics to their national network.
The clinics include 3 in Queensland located within the Fraser Coast region and one located in Armidale, New South Wales. All four clinics are mixed animal clinics which have benefited from the surge in pet ownership throughout the pandemic.
This resulted in 25% revenue growth from the three Fraser Coast clinics over the past two years. With a 36% population growth forecast in the Fraser Coast region (250km north of Brisbane) over the next 15 years, it was specifically targeted by Apiam for expansion as part of their acquisition strategy that targets regional growth corridors.
“We are continuing to see strong growth in animal ownership and regional veterinary services in many locations. The acquisitions of Fraser Coast and North Hill have been targeted to capture this growth and have strategic benefits given our growing clinic networks in the QLD and NSW regions,” said Apiam Managing Director, Dr Chris Richards.
“Not only can we share skills and staff across our locations, but we can leverage our infrastructure from adjacent clinics.”
The existing infrastructure referenced by Richards includes the 64 other veterinary clinics operated by Apiam around Australia. By adding new clinics in targeted areas, Apiam clinics are able to share veterinary expertise in specific fields (eg, equine, cattle, surgery etc), increasing their service offering.
On an FY21 basis, these 4 newly acquired clinics will add $5.4m of revenue to Apiam. Once added to the acquisition spree undertaken in the past six months, including last week’s acquisition of Agnes Banks Equine Centre, Apiam has acquired $24.54m in revenue which can be added to the $126.2m generated in FY21 by the Company.
Total consideration for the 4 clinics acquired is $3.6m which will be funded by a combination of existing cash flow, Apiam’s finance facility and AHX shares.
Striking while the iron is hot, Apiam have been winners from the pandemic’s increase in pet ownership which has provided fresh cash flow to undertake their ambitious expansion strategy.
“We have had a solid start to FY22,” said Dr Richards.
“Our revenue over July-October is 19.8% higher than in the same period last financial year.
“Gross margins continue to trend higher as well, driving a gross profit improvement of 28.6% for the FY22 YTD period.”
Continued growth of the Apiam network has been the driving force behind Apiam’s rising profits. As the network grows, clinics have seen greater revenue courtesy of Apiam’s nation-wide marketing and ancillary services. These include the opportunity to offer customers with membership to Apiam’s popular Best Mates program for unlimited consultations, as well as centralised services such as telehealth, pathology, vaccinations and pet supplies.
Since FY18, Apiam has increased its gross profit by 37.8% which was underpinned by gross profit margins increasing 800 basis points over the last four years from 48% to 56%. The Company now employs more than 850 animal health professionals and is Australia’s largest provider of regional animal health services.
Data released by Animal Medicines Australia revealed Aussies spend $30.7 billion per annum on cats and dogs at an average of $2,074 per cat and $3,237 per dog on food, veterinary services, and pet healthcare products.
Brokers have identified AHX as a stock undervalued by the market, with Shaw & Partners recently issuing a $1.29 price target. Burrell shared a similar view with their $1.27 valuation.
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