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&nbsp;Group<br>FY20 Preview&nbsp;— The Next Script</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>We expect strong FY20 growth for EBOS Group (EBO) when the company reports on 20 August, with growth across all product categories, particularly Pharmacy Wholesale (introduction of Chemist Warehouse volumes), and helped by a stellar 3Q20 (boosted by consumer stock-piling). EBO's guidance for a "significant increase in earnings" has left plenty of scope for interpretation. We forecast NPAT of A$166m, +15%, with 2H20 growth of +17%. Recent trading has likely been volatile as a result of COVID-19 and government restrictions, however, we expect the portfolio to show resilience with its key product exposures defensive and well positioned in the current backdrop. Outlook/trading insights will be of particular interest.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/153/106/original/image_32844156741597709705477.png?1597709709" class="editor-image img-responsive" data-smartkarma-image-id="153106"></figure>
<div>
<h3>Key points of interest</h3>
</div>
<div>
<ul>
<li><strong>Recent trading insights and any outlook comments</strong>:&nbsp;Recent industry anecdotes are mixed and point to monthly volatility —&nbsp;with resilience in prescription medicines, while over-the-counter products have been more volatile. Regional pharmacies are also proving more resilient than&nbsp;CBD/mall locations, with foot traffic materially impacted for the latter as a result of&nbsp;COVID-19 related restrictions. 3Q20 was likely very strong, helped by consumer stockpiling. We look for insight on subsequent trading.</li>
<li><strong>Reiteration of recent regulatory changes —&nbsp;modestly positive for wholesalers</strong>:&nbsp;Australia's 7th Community Pharmacy Agreement was signed in June 2020, bringing funding certainty through to 2025 and a modest net positive funding outcome for wholesalers. We have assumed a benefit of A$6–7m per&nbsp;annum&nbsp;for&nbsp;EBO&nbsp;(c. 2–3% of earnings). Any greater insight from&nbsp;EBO&nbsp;will be of interest.</li>
<li><strong>M&amp;A update</strong>:&nbsp;EBO&nbsp;has a well signalled and consistent bolt-on acquisitive strategy. Gearing is conservative and we estimate headroom of c. A$350–400m.&nbsp;It is difficult to judge the impact of&nbsp;COVID-19 —&nbsp;it may produce target options and/or a reset in valuation expectations, however,&nbsp;there is risk it slows decision making from vendors while uncertainty is rife.</li>
<li><strong>Voluntary escrow expires on 21&nbsp;August for major shareholder</strong>:&nbsp;The recent sell-down by major shareholder,&nbsp;Sybos&nbsp;Holdings, has weighed on&nbsp;EBO's&nbsp;share price through 2020.&nbsp;Sybos&nbsp;has reduced its stake to ~19% (from ~40%) via two block trades in November 2019 and June 2020. The current voluntary escrow period finishes on 21 August 2020, with risk of a further sell-down returning.</li>
</ul>
</div>
<div>
<h3>Conference call — 11:30am NZ time on 20 August</h3>
</div>
<div>
<p>Requires pre-registration:&nbsp;<a href="http://apac.directeventreg.com/registration/event/2543769" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://apac.directeventreg.com/registration/event/2543769&amp;source=gmail&amp;ust=1597794343403000&amp;usg=AFQjCNEXk34vz87F8yoiZRMDuIB0qFRlpw" rel="noopener">http://apac.<wbr>directeventreg.com/<wbr>registration/event/2543769</a></p>
</div>
<div>
<div>
<div>
<div><strong>Chelsea Leadbetter CFA</strong></div>
<div><a href="mailto:chelsea.leadbetter@forsythbarr.co.nz" target="_blank" rel="noopener">chelsea.leadbetter@<wbr>forsythbarr.co.nz</a></div>
<div>+64 4 495 5262</div>
</div>
</div>
</div>

EBOS&nbsp;Group FY20 Preview&nbsp;— The Next Script

NEUTRAL
We expect strong FY20 growth for EBOS Group (EBO) when the company reports on 20 August, with growth across all product categories, particularly Pharmacy Wholesale (introduction of Chemist Warehouse volumes), and helped by a stellar 3Q20 (boosted by consumer stock-piling). EBO's guidance for a "significant increase in earnings" has left plenty of scope for interpretation. We forecast NPAT of A$166m, +15%, with 2H20 growth of +17%. Recent trading has likely been volatile as a result of COVID-19 and government restrictions, however, we expect the portfolio to show resilience with its key product exposures defensive and well positioned in the current backdrop. Outlook/trading insights will be of particular interest.


Key points of interest



Recent trading insights and any outlook comments:&nbsp;Recent industry anecdotes are mixed and point to monthly volatility —&nbsp;with resilience in prescription medicines, while over-the-counter products have been more volatile. Regional pharmacies are also proving more resilient than&nbsp;CBD/mall locations, with foot traffic materially impacted for the latter as a result of&nbsp;COVID-19 related restrictions. 3Q20 was likely very strong, helped by consumer stockpiling. We look for insight on subsequent trading.
Reiteration of recent regulatory changes —&nbsp;modestly positive for wholesalers:&nbsp;Australia's 7th Community Pharmacy Agreement was signed in June 2020, bringing funding certainty through to 2025 and a modest net positive funding outcome for wholesalers. We have assumed a benefit of A$6–7m per&nbsp;annum&nbsp;for&nbsp;EBO&nbsp;(c. 2–3% of earnings). Any greater insight from&nbsp;EBO&nbsp;will be of interest.
M&amp;A update:&nbsp;EBO&nbsp;has a well signalled and consistent bolt-on acquisitive strategy. Gearing is conservative and we estimate headroom of c. A$350–400m.&nbsp;It is difficult to judge the impact of&nbsp;COVID-19 —&nbsp;it may produce target options and/or a reset in valuation expectations, however,&nbsp;there is risk it slows decision making from vendors while uncertainty is rife.
Voluntary escrow expires on 21&nbsp;August for major shareholder:&nbsp;The recent sell-down by major shareholder,&nbsp;Sybos&nbsp;Holdings, has weighed on&nbsp;EBO's&nbsp;share price through 2020.&nbsp;Sybos&nbsp;has reduced its stake to ~19% (from ~40%) via two block trades in November 2019 and June 2020. The current voluntary escrow period finishes on 21 August 2020, with risk of a further sell-down returning.



Conference call — 11:30am NZ time on 20 August


Requires pre-registration:&nbsp;http://apac.directeventreg.com/registration/event/2543769




Chelsea Leadbetter CFA
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262




EBOS Group: FY20 Preview — The Next Script

Ebos Group Ltd

EBOS Group: FY20 Preview — The Next Script