EBO-Ebos

[Shareguy]

Not trying to be a dick, but I recall one of your previous posts long ago that your broker's main pick at the time was STU?

Might have been. Stu was great value long ago under a $1 and it got over $2 when I sold out. But yes my broker currently thinks that with Ebos for a 2026/27 recovery. I have a large position, but we could both be wrong. It's a quality stock with great growth till the CW loss. I'm picking the growth will continue once again.

[BlackPeter]

Craigs latest is $40.68.  My broker says the number one buy currently on the NZX.

A quality stock at a reasonable valuation is how I see it currently.

 

Mmh ... at current SP it comes with a forward PE (3 yrs) of 20 - which is together with a forward CAGR of 2.8 sort of ok-ish, but certainly not cheap.

Sparkish?

Anyway - not in my portfolio - more to buy for you and your broker;

[Basil]

Craig's thoughts

STOP PRESS – EBO has reported FY25 uEBITDA of $585m, slightly below the midpoint of guidance of $575-600m but 2% below consensus and 5% below CIPe. While EBO's revenue was in line with our above consensus estimates, driven by strong PBS spend for the core Pharmacy wholesale business, and GOR margin was also healthy (if slightly below estimates), operating costs were higher than expected. This may partly reflect timing of the full benefits of EBO's cost out programme being deferred more to FY26, with EBO still confident in achieving its $25-50m run rate target by the end of FY26, an outcome we had however expected sooner given EBO's strong progress in 1H25. Even so, EBO's FY26 guidance for uEBITDA to grow 7% at the mid-point is 6% below consensus (comprised of the 2% miss in FY25 and a further 4% miss in FY26) and 7% below CIPe notwithstanding a previously unannounced acquisition (i.e. so the underlying miss is larger), with EBO also talking to a more competitive environment in the pharmacy wholesale business and consumer softness impacting animal care

Disc/ not currently holding

Its hard to understand after the underwhelming result in August 25 how Craigs went on in October at over $40 to have it as their #1 stock pick ?

[winner (n)]

Ebos did an awful job in presenting their full year results .... truly dreadful (not the result but the presentation)

There was little effort made in saying where the future profit streams are coming from and little in the way of insights into the new businesses they have recently acquired. I think it was Forbar who said Aus Bio and Transmedics were 'hidden gems' and will continue to grow prfits strongly, esp in Asia.

EBO out of favour with the Aussies and its them that drives the share price to a certain extent. When Ebos management gets into gear and becomes a heck of lot better with explaining their businesses with market players things could turn around fast.

It wouldn't surprise me to see a high $30's share price early next year.

[Basil]

I recently looked at the backward 7 year CAGR in tandem with consensus forecasts out to FY28 to get a view on their average growth for the decade inclusive of forecast growth and came to the conclusion the shares are now fairly priced after a huge correction in the last 6 months.

Buying stocks in a downtrend is not a risk I am prepared to take unless a company is truly compelling value on a fundamental basis.

[winner (n)]

One needs to be careful 'analyzing' EBO as they report in $A and I've noticed that often NZ commentators don't notice

Marketscreener EPS forecasts are in AUD (has a footnote)

Forecast EPS F26 is A$1.30 (+6.4% and F27 is A$1.44 (+11.2%) and  F28 is AU$1.62 (+12.2%)

At current share price A$22.60 that's a PE of 17 for current year and 14 for F28

On that basis seems pretty cheap to me

[Basil]

The issue as I see it is that growth across a decade is not all that good. In 2018 they earned 98.5 cps, source 2018 annual report.
In 2028 if they meet consensus forecasts of $1.62 that's a 10 year CAGR of just 5.1%.

Great value would be a PE of 8.5 + 5.1 = 13.6. Truly compelling value sufficient for me to buy in a downtrend would be a lower forward PE than that.
I'm underwhelmed.

Two very different stocks but just to illustrate my point. HLG in 2018 earned 46 cps. If they meet consensus forecasts for FY28 of 93 cps that's a decade long EPS CAGR of 7.3% and yet they are on a forward PE of just 12. That's buying growth at a truly compelling price.

[lorraina]

Ebos. EPS growth Forbar FB and Market Screener,MS.
.....................2025...........2026.........2027........2028.
EPS,FBnz   ..144.5............143.9.........155.9.......174.7.
 eps growth............minus..........8.33%.......12.05%........Average... 6.79%
EPS MSau....1.216............1.294..........1.438........1.612
eps growth................6.41%.........11.12%.........12.10%....Average ..9.87%
Current PE 22.11
PEG FB..........22.11 divided by 6.79 A very high 3.25
PEG.MSs..........22.11 divided by 9.87 High at 2.24.
A PEG of under 1 is good.


Perhaps it is easy to see why I prefer AFT;
From a broker's research.
....................2025A.................2026 E.................2027E...................2028E
EPS...............10.9.....................15.6......................20..........................20.75
EPS Growth.............43.7%...................28.2%.................37.5%........................Average eps growth 34.46%
Current PE ratio is 21.63 giving a PEG ratio of [21.63] Divided by [av growth] 34.46 of well under one at .627.

[Basil]

I prefer to look at the PEG ratio with a broader lens over a longer period of time, my calculation is in the AFT thread, but each to their own ways of doing things.

[lorraina]

Each to their own,however this book is an interesting read;
The Most Important Thing
Uncommon Sense for the Thoughtful Investor
Marks, Howard, -
 
 
This book explains the keys to successful investment and the pitfalls that can destroy capital or ruin a career. Utilizing passages from his memos to illustrate his ideas, Marks teaches by example, detailing the development of an investment philosophy that fully acknowledges the complexities of investing and the perils of the financial world. Brilliantly applying insight to today's volatile markets, Marks offers a volume that is part memoir, part creed, with a number of broad takeaways.

PS .
If your library does not have it ask them to order it.
Christchurch libraries have it in stock.
PPS.Made me understand more fully the high risks of "in fashion "stocks, and how well researched "out fashion" stocks can out perform the market.
What to look for and what to avoid.

[Basil]

Don't know the author and am very careful what I read these days to make sure the author has a stellar track record  before reading but it sounds like it's a modern spin on what is widely regarded as "the bible' of value investing, Ben Graham's "The Intelligent investor" which every investor should read. Warren Buffett famously called this book by far the best book ever written on investing.

Two of Ben Graham's key principals are
1. Never pay more than 15 times the average of the last 3 years earnings.
2. When investing for dividend income and assessing the reliability of it, only invest in companies with an unblemished track record of over 20 years.

Very, very few companies on the NZX meet those criteria. HLG passes both those tests with flying colour's and has no debt. For those and many other reasons including its relatively undiscovered as a growth stock and is arguably Australasia's cheapest growth stock with a well proven track record, it's my largest investment position.

These holiday's I am reading Nigel Latta's last book "Lessons on Living'"...only part way through but it's a great read so far

[lorraina]

Howard Stanley Marks (born 1946) is an American investor and writer. He is the co-founder and co-chairman of Oaktree Capital Management, the largest investor in distressed securities worldwide. In 2022, with a net worth of $2.2 billion, Marks was ranked No. 1365 on the Forbes list of billionaires.[1]

Marks's essays, called "memos", are widely admired in the investment community. They detail his investment strategies and insight into the economy and are posted publicly on the Oaktree website. He has also published 3 books on investing.[2][3] According to Warren Buffett, "When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something, and that goes double for his book."[4]

Marks focuses on risk management and says that investors should set investment strategy according to their personal situations and ask themselves whether they worry more about the risk of losing money or the risk of missing an opportunity.[4] Marks believes that it is hard to gain an investment advantage through research since so many smart people are doing it already; the ways to get an advantage are through better inferring the consequences implied by current company data, managing the psychology of investing, and assessing the present stage of the business / market cycle. He hopes to have average returns during a bull market, while minimizing losses during bear markets due to his belief that losses do more harm than any benefit investors obtain from gains. Marks does favor using market timing strategies to have cash available to be invested during a downturn.[5] Marks notes that it is important for investors to admit what they don't know instead of believing something is certain. He aims for a "high batting average" over "home runs".[6]

Funds led by Marks have produced long term returns net of fees of 19% per year. Investors are primarily pension funds and sovereign wealth funds.

[Shareguy]

Looks like the selling has come to an end. Price firming. Should see some disclosure notices coming soon.

[Ferg]

A couple of graphs for EBOS; the first one shows the derivation of earnings and the second is the historic P/E ratio.

EBOS has consistently produced NPAT of around 1.6% to 2.0% of sales for the past 15 years. Some of the increased sales have been "purchased" by issuing new shares to acquire other businesses. Looking at time slices of 10 or 15 years looks through gaining and losing the Chemist Warehouse business.

CAGRs over the past 10 years are:
~ Sales +8.3% p.a.
~ Share Count +3.0% p.a.
~ NPAT as a % of Sales +0.1% p.a.
~ Putting this together EPS has grown by +5.2% p.a.

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And looking at the share price, the following graph plots the closing quarterly share price (the blue squiggly line) versus a P/E ratio band. I chose the values 15-25 for the band given I don't think that investors in general should pay more than 25 times earnings for anything. The green line would be the SP at a P/E ratio of 15 and the orange line would be the SP at a P/E ratio of 25. The grey dotted line is the midpoint - the earnings for each quarter is a blend of historic earnings & future earnings.

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IMO this graph shows the Ebos SP has recently gone from horrendously expensive since 2021, to being very expensive today. I would not be buying at these prices. The P/E ratio has a compound annual growth rate of +8.2% p.a. for the past 10 years; so whilst earnings have grown at +5.2% p.a., investor confidence has grown by +8.2% p.a.

Notes:
All values are NZD; Australian reported values have been converted to NZD using an annual midpoint FX rate.
Disclosure: observer only, no position.

[Shareguy]

Thanks for posting that Ferg. Ebos has always been expensive from a PE point of view but in my opinion you pay for quality.

Your graph states EPS has grown by +5.2% p.a. I expect that to continue from 2027.