In the backstretch of a business transformation that has consolidated their nationwide business and resumed shareholder dividends, one small cap Managing Director is so confident in the progress that he has personally backed the Company’s growth, purchasing $1.0 million in shares.
The show of confidence comes from Dr Chris Richards, Managing Director and CEO of vet clinic operator Apiam Animal Health (ASX: AHX) which operates 73 vet clinics throughout Australia alongside a range of vertically integrated animal health businesses.
The purchase included 1.7 million shares that he purchased on-market last Thursday, as well as ~1.2 million shares that he subscribed for via Apiam’s dividend reinvestment program (DRP), in lieu of the cash interim dividend he was entitled.
It also takes his holding in Apiam to 23.18%, a Company he originally founded before listing on the ASX in 2015. At the time, Apiam operated 12 regional vet clinics but that has now grown to 73 which employ more than 350 clinical veterinarians throughout Australia.
The confident buying is in stark contrast to common practices within the ASX where Directors participate in discounted capital raises and dilute shareholders. Comparatively, Richards’ on-market buying and DRP participation has avoided any material dilution and preserved Apiam’s cash respectively.
In an added vote of confidence, fellow Apiam Directors Andrew Vizard, Jan Tennent and Richard Dennis also notified the ASX that they had also taken up DRP shares rather than cash.
In 2022, Apiam slowed their acquisition pipeline after acquiring about 30 vet clinics over the space of 3 years. The move was designed to unlock synergies of those acquired clinics in an initiative that would increase their customer reach and revenue, while streamlining operations through vertical integration of Apiam’s supply chain. Ultimately, the initiative removed $2.6m in annualised costs from the business, while services to more pet owners and farmers grew.
While the transformation took place, the Apiam Board made the prudent decision to halt dividend distributions for 12 months, amid uncertainty of rising interest rates and macroeconomic pressures having previously offered dividend yield between 3-5%.
Apiam has now resumed dividend distributions to shareholders following their H1 FY24 results with Richards allocating his entire yield towards reinvestment in AHX shares.
For the Half Year ended 31 December 2023, Apiam reported $104.4 million revenue which represented a 11.4% increase on the previous corresponding period. Gross profit increased by 15.5%, reaching $70.9 million, driven by the provision of higher value products and services as well as a growing contribution from Apiam’s dairy & mixed animal segment.
Underlying EBITA soared to $9.2 million, marking a 32.7% increase over the same period while net profit after tax increased 13.3% to $4.6 million despite an additional $1m in finance costs. The Board subsequently declared an interim dividend of $0.01 per share.
A pivotal driver of Apiam’s cost reduction has been the transition to a new vet-supported clinic management model. This approach not only enabled significant savings within Apiam’s Business Support Network, but has commenced delivering greater earnings margins from acquisitions made in recent years.
According to Richards, realising these synergies is still an ongoing process with so many of the acquired clinics still not fully unlocked. But as evidenced by his buying, Richards is confident that the early success of the program will be replicated as it rolls out to more of Apiam’s 73 clinics nationwide – a number that is now growing primarily from greenfield sites rather than acquisitions.
Just last month, Apiam opened a new vet clinic in Tarneit, Victoria which is one of Victoria’s fastest growing suburbs within the State’s Western growth corridor. It follows two other greenfield sites opened over the past 12 months in Yarrawonga (Vic) and Caboolture (Qld) in attractive locations that Apiam has been targeting in high growth areas that are trending towards financial maturity within 3 years of opening.
Looking ahead, Apiam remains optimistic about revenue opportunities, driven by the essential nature of the resilient animal healthcare services it provides and its investment in new services and products. The Company’s focus for the remainder of FY24 revolves around extracting further earnings and cash flows from its existing clinic portfolio while maximising organic revenue growth. This will be further executed through the integration strategy which the company reported has already delivered encouraging results, obviously enough to see the Managing Director buy an additional $1 million worth of shares.
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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