New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>EBOS Group<br>1H22 Result&nbsp;— Patient Discharged; NEUTRAL</h2>
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<p><strong>NEUTRAL</strong></p>
<p>EBOS Group (EBO) reported a strong 1H22 result in line with our expectations but ahead of consensus expectations. Growth was broad-based, including from market share gains, acquisition contributions, positive industry growth, and a modest net benefit from COVID-19. The strong business performance over recent time, coupled with the&nbsp;LifeHealthcare&nbsp;(LHC) acquisition, has driven a significant re-rating in EBO’s share price (which has materially outperformed peers and the NZ market). The stock now trades at a material premium versus history, both in absolute terms and relative to market. We continue to view EBO as a quality, defensive business with a robust medium to long-term outlook but believe a period of share price consolidation is most likely over the next 12-months; we downgrade to NEUTRAL.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;FY22/FY23/FY24 EPS +3%/+0%/+2%.&nbsp;</li>
<li><strong>Target price</strong>:&nbsp;Decreased to NZ$40.70&nbsp;(from NZ$43.80) primarily reflecting WACC changes.</li>
<li><strong>Rating</strong>:&nbsp;Downgraded to NEUTRAL from OUTPERFORM.</li>
</ul>
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<h3>Key takeaways from the 1H22 result</h3>
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<ul>
<li><strong>Positive earnings momentum continues</strong>:&nbsp;Growth was broad based with the resilience of&nbsp;EBO's&nbsp;portfolio continuing to be showcased.&nbsp;Animal Care&nbsp;momentum continues (EBITDA up +14%) reflecting (1) industry tailwinds accelerated by COVID-19 (higher spend per pet and increased pet ownership), and (2) market share gains.&nbsp;Healthcare&nbsp;was the standout feature (EBITDA up +15%) with solid performance across all segments, led by&nbsp;Community Pharmacy;&nbsp;the latter reflects&nbsp;a combination of (1) market share gains, (2) strong performance from its retail brands, and&nbsp;(3) the return of Pfizer volumes to the wholesale channel.</li>
<li><strong>EBO "comfortable" with the outlook</strong>:&nbsp;Consistent with standard practice minimal commentary was provided but EBO continues&nbsp;to be "comfortable" with current trading conditions. Our revised forecasts (excluding the likely LHC earnings contribution) assume a broadly consistent full year EBITDA growth rate to that experienced in 1H22.</li>
<li><strong>LHC acquisition update</strong>:&nbsp;EBO retained guidance that it expects the transaction to complete prior to the end of FY22. Post acquisition,&nbsp;EBO expects ND/EBITDA to be &lt;2.25x&nbsp;— our current forecasts are for 2.1x.&nbsp;</li>
</ul>
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<h3>Downgrade to NEUTRAL&nbsp;</h3>
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<p>We downgrade EBO to NEUTRAL. The strong&nbsp;share price performance has materially outperformed peers&nbsp;and the NZ market&nbsp;through a combination of (1) earnings upgrades (execution and robust industry growth), (2)&nbsp;significant multiple expansion, and&nbsp;(3) utilisation of its previously conservative balance sheet by acquiring LHC.&nbsp;EBO is now trading at a premium versus&nbsp;its own history and relative to market; we believe a period of share price consolidation is most likely in the near-term. We continue to view EBO as a quality and well positioned business which we expect will deliver strong earnings growth over the medium to long-term.</p>
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EBOS Group 1H22 Result&nbsp;— Patient Discharged; NEUTRAL

NEUTRAL
EBOS Group (EBO) reported a strong 1H22 result in line with our expectations but ahead of consensus expectations. Growth was broad-based, including from market share gains, acquisition contributions, positive industry growth, and a modest net benefit from COVID-19. The strong business performance over recent time, coupled with the&nbsp;LifeHealthcare&nbsp;(LHC) acquisition, has driven a significant re-rating in EBO’s share price (which has materially outperformed peers and the NZ market). The stock now trades at a material premium versus history, both in absolute terms and relative to market. We continue to view EBO as a quality, defensive business with a robust medium to long-term outlook but believe a period of share price consolidation is most likely over the next 12-months; we downgrade to NEUTRAL.


What's changed?&nbsp;



Earnings:&nbsp;FY22/FY23/FY24 EPS +3%/+0%/+2%.&nbsp;
Target price:&nbsp;Decreased to NZ$40.70&nbsp;(from NZ$43.80) primarily reflecting WACC changes.
Rating:&nbsp;Downgraded to NEUTRAL from OUTPERFORM.



Key takeaways from the 1H22 result



Positive earnings momentum continues:&nbsp;Growth was broad based with the resilience of&nbsp;EBO's&nbsp;portfolio continuing to be showcased.&nbsp;Animal Care&nbsp;momentum continues (EBITDA up +14%) reflecting (1) industry tailwinds accelerated by COVID-19 (higher spend per pet and increased pet ownership), and (2) market share gains.&nbsp;Healthcare&nbsp;was the standout feature (EBITDA up +15%) with solid performance across all segments, led by&nbsp;Community Pharmacy;&nbsp;the latter reflects&nbsp;a combination of (1) market share gains, (2) strong performance from its retail brands, and&nbsp;(3) the return of Pfizer volumes to the wholesale channel.
EBO "comfortable" with the outlook:&nbsp;Consistent with standard practice minimal commentary was provided but EBO continues&nbsp;to be "comfortable" with current trading conditions. Our revised forecasts (excluding the likely LHC earnings contribution) assume a broadly consistent full year EBITDA growth rate to that experienced in 1H22.
LHC acquisition update:&nbsp;EBO retained guidance that it expects the transaction to complete prior to the end of FY22. Post acquisition,&nbsp;EBO expects ND/EBITDA to be &lt;2.25x&nbsp;— our current forecasts are for 2.1x.&nbsp;



Downgrade to NEUTRAL&nbsp;


We downgrade EBO to NEUTRAL. The strong&nbsp;share price performance has materially outperformed peers&nbsp;and the NZ market&nbsp;through a combination of (1) earnings upgrades (execution and robust industry growth), (2)&nbsp;significant multiple expansion, and&nbsp;(3) utilisation of its previously conservative balance sheet by acquiring LHC.&nbsp;EBO is now trading at a premium versus&nbsp;its own history and relative to market; we believe a period of share price consolidation is most likely in the near-term. We continue to view EBO as a quality and well positioned business which we expect will deliver strong earnings growth over the medium to long-term.


EBOS Group: 1H22 Result — Patient Discharged; NEUTRAL

Ebos Group Ltd

EBOS Group: 1H22 Result — Patient Discharged; NEUTRAL