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Australians are no exception to the growing trend of consumers around the world spending more on their pets. We rank near the top of percentage pet ownership, with about 63% of Australians owning pets.  We spend somewhere around $12 billion a year on a variety of pet care products and services, a reported 42% increase between 2013 and 2016.  A recent article on Aussie spending on pet care appearing in The Australian claims the spending levels makes the pet care industry one of the major growth hot spots of the country’s business sector.
Prior to 2015 Aussie investors had only one choice to invest in the pet care sector – Greencross Limited (GXL), debuting on the ASX in June of 2007.  Although the stock price has declined since 2014, investors who got in at the beginning have seen stock price appreciation exceeding 250%.  

In 2015 two new entries, both with differences in business models, expanded available investment opportunities to include another pet care provider and a broader provider serving both livestock or production animals and pets.  Here are the three ASX stocks of interest, with price movement and earnings growth information.

While the NVL share price followed the pattern set by GXL, shares of AHX headed south after a solid start. Here is a price chart comparing the stock performance of the two recent ASX entries.

The common element shared by all three is growth through consolidating small business entities in a fragmented sector.  Pet care and animal care throughout Australia is comprised of a host of small vet clinics.  Greencross began by gobbling up a growing number of these clinics, offering management services to allow clinic operators to focus exclusively on care.  
While the more successful NVL and GXL focus primarily on companion animals, Apiam’s principal focus is on livestock animals, although some of the rural vet clinics the company is consolidating do offer pet care.
National Veterinary Care has the most restrictive business model – the company is strictly in the pet vet care business.  Industry leader Greencross dramatically expanded its reach with its 2013 merger with Mammoth Pet Holdings, a retailer specialising in pet products through its Petbarn outlets.  
It wasn’t long before investors began to worry about the costs of these acquisitions and the volatile nature of brick and mortar retailing in an increasingly online retail environment and the Greencross share price began to decline.  
Based on year over year price performance it would appear National Veterinary Care has grabbed the role of market darling from Greencross.  The analyst community agrees as NVL has an OUTPERFORM consensus rating while GXL is at HOLD.
Aussies’ love affair with their pets is unlikely to change as companion animals have evolved to the status of family members.  As such the associated costs of pet care are rarely considered as discretionary.  In addition, medical treatment options have exploded, as has their cost. Magnetic Resonance Imaging (MRI) and chemotherapy  are now readily available for diagnosing and treating pets.  Consumers looking for higher quality foods, grooming services, and even pet insurance are on the rise.  All this bodes well in a general sense for both NVL and GXL.
Pet industry experts point to the rising number of “baby boomer” vets ready to retire as positive growth opportunities for both companies.  
Despite the current naysayers, it is hard to deny the obvious potential advantage Greencross has over National Veterinary Care with its retail operations.  The company’s strategy of integrating vet clinics and pet accessory sales has yet to bear fruit, but the 2017 Half Rear Results suggest a brighter future, with double digit increases in both revenue and profit.  Greencross offers customers online and mobile purchasing applications to augment its retail stores.  The company is planning to expand its retail outlets from the current 221 to 350.  Of greater interest to investors should be the move toward placing vet clinics inside the retail stores, potentially expanding revenue.  Right now, Greencross has only 25 in-store clinics with expansion plans to reach 120.  
The retail outlets do much more than sell pet food.  Professional and do-it-yourself grooming, pet training, boarding, and pet insurance are all options available at a Greencross center – Petbarn and City Farmers in Australia and Animates in New Zealand. The core veterinary services business includes 124 general practice vet clinics along with 30 emergency hospitals and specialist centres.  
National Veterinary Care Limited (NVL) may be attracting more investors due to its simpler, lower cost, business model when compared to Greencross.  According to the experts, there are more than enough independent vet clinics around Australia to allow both National and Greencross to grow.  National’s approach to its potential acquisitions is to offer to assume the business operations of the clinic; cost advantages for equipment and other purchases through a centralised Procurement Group; and a Centre for Excellence offering technical training for veterinary professionals.  Clinics wishing to remain independent can contract with the company for business coaching and supplier purchasing negotiations.
NVL plans to grow its business not only through clinic acquisition, but also through organic improvement in existing clinics through Centre for Excellence offerings, and contracting more independent clinics in the Management Services and Procurement Group.  National also markets Pet Wellness Plans, which client clinics can offer customers.
In mid-June, the company went into a trading halt pending an announcement.  Investors liked what they heard when the news came out – new clinic acquisitions – and the stock price went up about 8%.  Here is the chart.

A few days after the acquisition news was released the company announced a capital raise to fund future acquisitions and the stock price kept going up.  The company currently has 45 clinics in Australia and 9 in New Zealand.
The livestock agricultural sector is subject to a range of risks, many of which are beyond the control of individual companies operating in the sector.  Weather and market pricing can wreak havoc on the most well-managed business.  In sharp contrast, consumers care for their pets, rain or shine, and product pricing is relatively stable.
If the maxim greater reward comes with greater risk holds, Apiam Animal Health Limited (AHX) is worth a look.  In the company’s first Full Year Financial results for FY 2016, earnings per share (EPS) came in at $0.08 per share.  The 2017 forecast calls for EPS of $0.4 with $0.49 expected in FY 2018.  Investors with a wait and see attitude can check the FY 2017 Full Year Results, which should be announced sometime in August.
This a small company with only 28 clinic sites operated by 13 different businesses.  Some serve only production animals while others are “Mixed Animal Veterinary” businesses, serving both pets and livestock, primarily in rural areas.  Given the burgeoning demand for high quality animal protein throughout the Asia-Pacific region, it seems a likely bet production animal vets will benefit in the long run.  The downside is vet clinics will suffer in the event of a reduction in production animals.
Apiam’s Half Year 2017 Financial Results were solid enough, although the announcement came with a frequent disclaimer from many stocks in the agricultural sector – challenging industry conditions.  Revenues increased 4.1% while profit rose 15.2%, including four months’ contribution from a recent acquisition, Quirindi Veterinary Group.
Investors remain cautious at best and skeptical at worst as the stock price remained flat upon the release, but plunged on a late May FY17 Full Year Revenue & Earnings Guidance announcement.The following chart shows the resultant move in the share price.

Given the size of the drop one would assume something dire, such as plunging revenue, but one would be wrong.  The company maintained its earlier revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) guidance but warned of an increase in its cost base due to investments in an Enterprise Resource Planning (ERP) system, already in place, and a Practice Management System (PMS) to be introduced in all Apiam clinics during 2018.  
Management stated the systems were critical to the company’s long-term growth strategy, but investors weren’t buying the argument.  However, the company has other revenue generating operations in addition to its core clinics.
Apiam is vertically integrated, offering genetic consulting services including artificial breeding programs to its own and to independent clinics as well as wholesale buying services and logistics.  Apiam has three strategically located wholesale buying centres for animal products, with online ordering available.  The company operates 4 warehouse facilities and maintains an 18-vehicle fleet for delivery of products to its own and contracted clinics. 
Best of Breed here is largely in the eye of the beholder.  Those with a high-risk tolerance might consider Apiam Animal Health while those with low risk tolerance might opt for National Veterinary Care. 

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