No Images? Click here May 2018 Greencross downgrade bites hardThis week’s profit downgrade saw Greencross shares drop 22% to $4.18. It continued its plunge yesterday to $3.89. Its one year return made up of a combination of dividends and share price movement is negative 39.58 percent! Ouch. Newly appointed CEO Simon Hickey, the former Qantas Frequent Flyer and Qantas International CEO, might be wishing he was on an international flight. There has been assorted ringing of hands concerning the shift to more online purchasing by pet owners. Various savings are being sought from IT upgrades, cancellation of store improvement programs and reduction of head office and store staff and “tightening of fee discounting in the vet business”. Customer visits have fallen sharply at standalone vet clinics! Perhaps nobody told the new CEO that owner operator veterinary clinics have been winning clients from Greencross Ltd practices for years. Citigroup analyst Sam Teeger was quoted in the Australian Financial Review as slashing his earnings per share forecast by between 13% and 17%. He also said that the pullback on capital projects announced by Simon Hickey appears to confirm that Greencross’s balance sheet was stretched and would reduce the likelihood of another private equity bid like the $770 million takeover bid rejected by Greencross in 2016. We at Synstrat believe that any further bid of that nature would be extremely unlikely. The financial analysts whose reports we’ve seen on Greencross over the past year or so have not picked up on the severe veterinary staffing problem hitting the veterinary corporates. We also expect further share weakness not only in Greencross but also in National Veterinary Care and Apiam Animal Health both of which are trading well below 12 month highs. Apiam Animal Health traded at 71 cents yesterday, down from a 12 month high of $1.26, which National Veterinary Care traded at $2.41 down from a 12 month high of $3.20 The fact is that these business models have always been weaker than perceived. The original Greencross IPO and share offering paid for the buyout of three significant practice groups with strong existing management plus some smaller independent practices. Initially that strong management carried over and the veterinary staffing problems were yet to bite but they are now a serious problem for each of the listed veterinary companies and employees won’t work the extra hours that many dedicated owner operators of practices put in, and they don’t develop the strong client relationships typical of successful owner operators. Not only are all three listed veterinary groups trading well below their 12 month highs but I predict that all three will show further weakness. Independent practices run by their owners will continue to win market share back off these corporates. Best wishes to all veterinarians, Graham Middleton The Synstrat Group are Australia's most experienced Veterinary practice business advisers, accountants, practice valuers and licensed financial advisers. The information contained herein is of a general nature and no specific action should be taken without individual advice. Synstrat Management Pty Ltd P. 03 9843 7777 ABN 57 006 295 325 If you are not the intended recipient of this communication please delete and destroy all copies of this message and telephone Synstrat on +61 3 9843 7777 immediately. If you are the intended recipient of this communication you should not copy, disclose or distribute this communication without the authority of Synstrat. Any views expressed in this communication are those of the individual sender, except wh ere the sender specifically states them to be the views of Synstrat. If you do not wish to receive this email in future, please reply to the sender requesting termination of service. |