EBO-Ebos

[Shareguy]

No, Ebos was the only one .

[BlackPeter]

Not good news. It's going to be deleted. Estimated 13m shares involved.

What's not to like about this news?

While it might be bad news for short term holders with the attention span of a fruit fly - it sounds like great news for buyers.

Just another amazing opportunity to game the Index funds ...

[Shareguy]

What's not to like about this news?

While it might be bad news for short term holders with the attention span of a fruit fly - it sounds like great news for buyers.

Just another amazing opportunity to game the Index funds ...

Not good news from the point of view that there will be one less NZX company in the index (5 left) and there will be some short term pressure to sell the estimated 13m shares.

Agree maybe a good opportunity for buyers. A great company with a history of superior returns.

[Shareguy]

The Australian Federal Budget contained some good news for EBO – PBS funding for the FY24 year (to June) is now expected to be up 4% YoY to $17.7bn, and a full 12% higher than the budget a year ago (i.e. which was for a -7% decline). While the growth in overall PBS funding is skewed to hospital pharmaceuticals (reflecting increased funding for more widespread 'super drugs'), EBOS is the best positioned of all the wholesalers to capture this given its dominant position in wholesaling drugs to hospitals. While the 4% growth in PBS funding for the year is bang in line with our estimates, we have increased confidence that EBO will meet FY24 consensus estimates – at a critical time given the c.$450m overhang of stock as it exits the MSCI mid cap index May 31.

[Shareguy]

A good opportunity on Friday. $33.05.  Back up Tuesday I reckon.

[Shareguy]

Well its not a done deal...

https://www.afr.com/companies/retail/mega-chemist-warehouse-deal-will-substantially-lessen-competition-20240612-p5jl7y

[KW]

ASX favourite in this sector is currently PGC as the merger with CH2 has now been completed, PGC management replaced by CH2 management, and the company is now a decent sized $680M market cap with $3B of revenue and an international market.  

[Shareguy]

FB latest note today says they expect a solid result. Outperform $42. Results next week.  Will be interesting to see how they have done replacing the CW contract. 

[Shareguy]

Craig's latest out today

Healthy result ahead. Trading up ahead of anouncement

We expect EBO will deliver revenue and earnings growth 1% ahead of consensus when it reports its FY24 result on 21 August. We anticipate the small beat will be driven by the community pharmacy segment, which we expect will deliver revenue growth of 7% (vs consensus 6%), underpinned by a pick up in PBS spending growth to 9% YoY in 2H24 (up from 4% in 1H24) and continued market share gains from Sigma. We also expect to see an acceleration in contract logistics revenue in 2H24 following the opening of EBOS' new facility in Sydney late in 1H24, with demand growth supported by large pharmaceutical companies increasing inventory levels held in Australia following an accord with the Australian Government signed in 2022. We expect the institutional healthcare segment will deliver strong growth, albeit decelerating c.2% HoH in-step with slowing growth in high tech s

[Shareguy]

Great result with eps and dps increased as it has done every year for the last 10 years.

Outlook for FY25 underlying ebitda of $575 to $600m. When you consider the loss of the CW contract, this is good. Plus there is a good chance they will make another acquisition to close the gap. FY24 was $624m underlying ebitda.

Quality company

[BlackPeter]

Great result with eps and dps increased as it has done every year for the last 10 years.

Outlook for FY25 underlying ebitda of $575 to $600m. When you consider the loss of the CW contract, this is good. Plus there is a good chance they will make another acquisition to close the gap. FY24 was $624m underlying ebitda.

Quality company

Well, yes and no.

While I realize that people like them and are happy to pay a premium price, this is something which can change as well.

Liabilities to assets consistently high (61%) - and while most of these liabilities are basically the credit their suppliers give them while they wait for payment (I am wondering about their terms of payment), this is something just asking for a competitor to jump in and offer better payment conditions instead. Bit dangerous in times of product shortages.

Their NTA is negative. Lots of goodwill on the books. Just wondering whether their brands are really that strong?

Their dividend yield is underwhelming (3.2%) and in NZ not even fully imputed (just 25%). Something for investors who are happy with a substandard income and who like to pay more taxes for their income than they otherwise would need to.

Short term outlook with some uncertainties (big customer jumped ship)- but even if we assume they keep flourishing and growing as in the past ...  their 3 yrs forward PE of 23.2 (based on analyst consensus) combined with an earnings CAGR of 7 is, while ok-ish for a quality company still priced for perfection.

Not my understanding of a good investment, but hey - yes, it clearly is a company priced as a quality company. These things can go well for long periods ... and then they might change.

[Shareguy]

Well, yes and no.

While I realize that people like them and are happy to pay a premium price, this is something which can change as well.

Liabilities to assets consistently high (61%) - and while most of these liabilities are basically the credit their suppliers give them while they wait for payment (I am wondering about their terms of payment), this is something just asking for a competitor to jump in and offer better payment conditions instead. Bit dangerous in times of product shortages.

Their NTA is negative. Lots of goodwill on the books. Just wondering whether their brands are really that strong?

Their dividend yield is underwhelming (3.2%) and in NZ not even fully imputed (just 25%). Something for investors who are happy with a substandard income and who like to pay more taxes for their income than they otherwise would need to.

Short term outlook with some uncertainties (big customer jumped ship)- but even if we assume they keep flourishing and growing as in the past ...  their 3 yrs forward PE of 23.2 (based on analyst consensus) combined with an earnings CAGR of 7 is, while ok-ish for a quality company still priced for perfection.

Not my understanding of a good investment, but hey - yes, it clearly is a company priced as a quality company. These things can go well for long periods ... and then they might change.

You make some interesting points BP. The 25 percent imputation is the reality of most sales outside NZ. I don't hold for the divi. I hold for the appreciation over time in the share price. On my buy price I am actually getting a very good divi, but yes understand where your coming from.

If you look at the historical return over a long period you will see that the increase in eps year on year is spectacular. When you see it displayed in a graph you really appreciate that Ebos stands out as the best consistent return out of the whole NZX. I can't recall any other company with such consistency?

When you consider Another quality company FPH is trading on a FY24 actual PE of 67 yet EBOS is 21.3. Is FPH over priced? Does it justify that higher PE. A PE of 21.3 for a proven performer seems low when you compare the two.

So let's look at the latest result.

EBITDA up 7.3%. 5% of earnings growth was organic (after a headwind of -3% from Covid-related earnings streams tailing off) and 2% was from M&A (mainly an 11 months contribution from the Superior Pet Food acquisition)

Strong revenue growth in Institutional Healthcare (+11.5%) and Community Pharmacy (+6.8%) was underpinned by strong structural growth in high value speciality medicines and market share gains. Share gains have largely come at the expense of Sigma reflecting, respectively: i) Sigma's sale of its hospital pharmacy distribution business to CH2, a deal which took some time to be approved by regulators, during which time some customers switched to EBOS and ii) Sigma losing some independent pharmacy customers following the announcement of its intent to merge with Chemist Warehouse

Risks to guidance include the outcome of the maiden wholesaler agreement with the Australian Government (due next 4-8 weeks) and organic growth slowing.

The ceo is a proven performer and has a history of performance. Yes FY25 might be the first decline in eps for many years. Then again the gap is not that great and I would be surprised if we don't see some acquisitions that could easily make up the difference.

According to the presentation Ebos has increased eps every year for over 10 years that's 10.3% CAGR. Yes in the future it might be lower but no one really has any idea and for me previous results speak for themselves.

For me it's a core stock that I have no concerns about.

[BlackPeter]

Fair enough - people assess investments from different perspectives ... even if I am not sure whether the historic view (I paid less for the share and therefore my dividend yield is much better) makes a lot of sense.

I always assess investments with a view into the future. If they paid me in the past say 20% pa - great, buy the CEO a drink ... but the only thing which matters from here is what is the investment paying me in future.

Why? Well, assuming the future looks slow, then it doesn't help to dwell on an amazing past - it's just that I can use the invested money much better with a different investment which promises a good future income.

If I look at Ebos - SP went up in the last decade from $9.56 (24/8/14) to $36.40 (today). Not bad, this is a CAGR of nearly 14%. If I add the meagre 3% dividend (just assuming years before have not been better), then this is a return of something like  17% pa. Just one observation (because its anyway in my spreadsheet): earnings CAGR in the last decade was only 7.4, i.e. SP grew twice as fast as earnings. Hmm.

If we take the decade before - SP went from $3.34 (22/8/04) to $9.56; Not quite as good, but still 11% plus divie, so say 14% per year.

I can see why you consider this a good (past) investment.

If you assume that things stay as they have been and EBOS sits in another 10 years at $100, then it makes a lot of sense to hold.

Just not so sure about the latter. Too lazy to pull out old (20 yrs old) annual reports, but I am quite sure that PE for Ebos did increase not just over the last decade (as per above). Anybody knows - winner?

And this is the problem: If part of your SP increase is PE expansion, then this is something which will end at some stage and then there will be a rough awakening.

But given that the future is uncertain (with the exception of death and taxes) - I certainly do wish you that any PE reduction only comes after the SP is not any more relevant for you.

Ah yes - and re FPH. While I obviously don't know either whether they are too dear (given that this is as well dependent on assumptions about the future), what I can say is that I didn't manage to find any set of credible growth and earning assumptions which would justify their current Share Price. Anyway - their future just must be incredible , but this is anyway a different thread;

Anyway - good discussion.

[winner (n)]

BlackPeter ..... not updated for F24 but here's a chart going back to 2007 showing EPS and share price

Over duration of chart PE has been 19 and as can be seen been pretty much that until 2020 and then the world went stupid and the share price went over $40 ..and higher PE ...and that chart prompted me to reduce holding..... and you can guess when I started buying

With F24 of $1.57 EBO prob reasonably priced today based on historical trends

I'll update sometime soon

You cannot view this attachment.

[Shareguy]

BlackPeter ..... not updated for F24 but here's a chart going back to 2007 showing EPS and share price

Over duration of chart PE has been 19 and as can be seen been pretty much that until 2020 and then the world went stupid and the share price went over $40 ..and higher PE ...and that chart prompted me to reduce holding..... and you can guess when I started buying

With F24 of $1.57 EBO prob reasonably priced today based on historical trends

I'll update sometime soon

You cannot view this attachment.

Thanks Winner. The chart is " beautiful". If only we had more NZX stocks with a chart like this.