New Zealand Professional Investment Services Firm

Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>EBOS Group<br>Keeping to the Script</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>EBOS Group's&nbsp;(EBO) 1Q22 trading update confirmed a positive start to the year, with solid growth across the board and ahead of our prior expectations. Consistent with&nbsp;EBO's&nbsp;standard practice no FY22 guidance was provided. The company&nbsp;did highlight continued uncertainties ahead, however, the strong 1Q emphasises EBO continues to effectively navigate the current tricky environment. We remain attracted to&nbsp;EBO's&nbsp;defensive qualities, strong return on capital, conservative balance sheet (providing options&nbsp;for growth) and execution track record. At ~25x&nbsp;one year forward PE we continue to see solid relative value against the NZ market, particularly vs. defensive and large cap peers. Retain OUTPERFORM.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;Moderate lifts; NPAT up ~+5% primarily reflecting increased Animal Care assumptions.</li>
<li><strong>Target price</strong>:&nbsp;Increased to NZ$37.10 (up +5%) on&nbsp;earnings revisions.</li>
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<h3>Strong start to FY22</h3>
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<p>EBO provided a 1Q trading update at its ASM. The company has seen a strong start to FY22 with group revenue and earnings growth of just over 10% YoY. Commentary suggests trading has been solid across the board with strong revenue and earnings growth in both its Healthcare and Animal Care segments. As is EBO's standard practice, no FY22 guidance is provided at this time. COVID-19 lockdowns still present uncertainties and potential trading volatility, however, to date, EBO’s portfolio mix and defensive product categories have seen it navigate this backdrop well. Prior to FY21, EBO has not provided quantitative 1Q trading updates. That said, (1) last year's 1Q momentum was sustained through the full year, and (2) we see no one-offs which elevate this year's 1Q growth. We expect earnings growth will most likely broadly follow the current trajectory through the remainder of FY22.</p>
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<h3>Another small bolt-on acquisition consistent with strategy</h3>
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<p>EBO also announced the acquisition of MD Solutions, an Australian distributor of medical devices and consumables. No details on price or earnings were provided (we expect it to be small in the context of the group) but the acquisition is consistent with&nbsp;strategy (size and&nbsp;category) and complements&nbsp;its recent&nbsp;Pioneer Medical and Sentry Medical acquisitions (~A$80m investment combined). The medical devices and consumables category&nbsp;has been a key focus area recently and we expect EBO to continue to build its exposure both organically and via acquisitions over the short to medium term.</p>
<p>EBO has a healthy balance sheet (FY21 net debt to EBITDA of 0.85x) providing meaningful debt headroom (estimated &gt;A$400m). M&amp;A has been an area of value add historically which is not captured in our valuation or forecasts and we expect the focus to remain on smaller bolt-on acquisitions where valuation multiples are likely more attractive.</p>
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EBOS Group Keeping to the Script

OUTPERFORM
EBOS Group's&nbsp;(EBO) 1Q22 trading update confirmed a positive start to the year, with solid growth across the board and ahead of our prior expectations. Consistent with&nbsp;EBO's&nbsp;standard practice no FY22 guidance was provided. The company&nbsp;did highlight continued uncertainties ahead, however, the strong 1Q emphasises EBO continues to effectively navigate the current tricky environment. We remain attracted to&nbsp;EBO's&nbsp;defensive qualities, strong return on capital, conservative balance sheet (providing options&nbsp;for growth) and execution track record. At ~25x&nbsp;one year forward PE we continue to see solid relative value against the NZ market, particularly vs. defensive and large cap peers. Retain OUTPERFORM.


What's changed?&nbsp;



Earnings:&nbsp;Moderate lifts; NPAT up ~+5% primarily reflecting increased Animal Care assumptions.
Target price:&nbsp;Increased to NZ$37.10 (up +5%) on&nbsp;earnings revisions.



Strong start to FY22


EBO provided a 1Q trading update at its ASM. The company has seen a strong start to FY22 with group revenue and earnings growth of just over 10% YoY. Commentary suggests trading has been solid across the board with strong revenue and earnings growth in both its Healthcare and Animal Care segments. As is EBO's standard practice, no FY22 guidance is provided at this time. COVID-19 lockdowns still present uncertainties and potential trading volatility, however, to date, EBO’s portfolio mix and defensive product categories have seen it navigate this backdrop well. Prior to FY21, EBO has not provided quantitative 1Q trading updates. That said, (1) last year's 1Q momentum was sustained through the full year, and (2) we see no one-offs which elevate this year's 1Q growth. We expect earnings growth will most likely broadly follow the current trajectory through the remainder of FY22.


Another small bolt-on acquisition consistent with strategy


EBO also announced the acquisition of MD Solutions, an Australian distributor of medical devices and consumables. No details on price or earnings were provided (we expect it to be small in the context of the group) but the acquisition is consistent with&nbsp;strategy (size and&nbsp;category) and complements&nbsp;its recent&nbsp;Pioneer Medical and Sentry Medical acquisitions (~A$80m investment combined). The medical devices and consumables category&nbsp;has been a key focus area recently and we expect EBO to continue to build its exposure both organically and via acquisitions over the short to medium term.
EBO has a healthy balance sheet (FY21 net debt to EBITDA of 0.85x) providing meaningful debt headroom (estimated &gt;A$400m). M&amp;A has been an area of value add historically which is not captured in our valuation or forecasts and we expect the focus to remain on smaller bolt-on acquisitions where valuation multiples are likely more attractive.


Ebos Group Ltd

EBOS Group: Keeping to the Script