National Vet Care results work a treat

As the ASX's leading vet stock Greencross (ASX: GXL) prepares to formally leave the bourse in a couple of days after its buyout from TPG, other companies in the space will certainly have large shoes to fill.

With a market capitalisation worth around a fifth of Greencross' value, another Queensland-based outfit National Veterinary Care (ASX: NVL) is proving itself a strong contender as a major player in animal health.

In the group's interim first half results today, National Vet Care announced a 25.4 per cent rise in underlying net profit after tax (NPAT) to $3.9 million.

Buoyed by an expansion strategy that saw the company acquire 31 clinics of which 25 came from the purchase of New Zealand's Pet Doctors, the strong result has pushed up

 the NVL share price by 6 per cent today to $2.04 at 1:38pm AEDT.

NVL CEO and founder Tomas Steenackers tells Business News Australia the group now has 97 clinics to its name, with expectations to round out that number to 100 by the end of the year.

"We're probably going to do more acquisitions but I don't think you can expect to have another 31," he says.

"It's important to look at what we can improve in those specific clinics, and have more growth internally with those clinics and organic growth. When we feel happy with that we can resume the M&A

"We've done that integration in 90 days versus a plan of 120, which shows you how systems can integrate really quickly."

The market today has not seemed to fussed by the fact statutory NPAT is actually down 19.9 per cent year-on-year at $2.6 million, which had more to do with underperformance of certain acquired clinics in the previous corresponding period. 

"When we buy a clinic we buy them 80 per cent upfront and 20 per cent after two years, and we had four or five clinics last year that didn't maintain their profit, so they didn't get that 20 per cent of the purchase price," Steenackers explains.

"That's where we got the $1.6 million extra last year on the NPAT. So it's not an additional profit from operation; it's just before there were four or five clinics in the group that didn't perform as well as expected."

He says those particular clinics appear to have performed better after restructuring and are performing to plan, while the group continues to work towards being an employer of choice.

"We don't buy businesses to decline;  we buy clinics to add value, and that's where you see the $1.6 million on the bottom line," he says.

"Vet clinics are a strong asset but the reality is the HR, the staff component, is really critical. If you don't pay attention to your people or systems, it's going to be hard to integrate and continue evolving as an organisation.

"I think other corporates have been caught a little bit in that position, and that's where some private equity find a good opportunity to buy some of those businesses."

When asked about TPG's buyout of Greencross and what it means to the sector, Steenackers takes a 'wait and see' approach while sticking to the business plan.

"Remember Greencross is quite a different business today 75 to 80 per cent of the revenue is driven by retail, and that's where I think there's quite an appetite for private equity," he says.

"From our point of view we're going to continue what we're doing, continue showing some improvement internally, and try to continue improving our margins to make sure we can reinvest in the business.

"We've now proven to everyone that we can integrate 31 clinics in six months I haven't seen other consolidators being able to do that. So we're pretty proud of that, and that shows that we can if need be go faster at one point with our system and also supporting our people and clinics really well."

Overall, Steenackers describes National Veterinary Care as in a good position.

"We're becoming the only listed player in the small animal [health space] in a way, so I think that's going to represent an interesting time for us to see if people are taking their investment from Greencross for example and want to continue investing in the publicly listed market, and if they think National Vet Care is going to be a good vehicle for them," he says.

Business News Australia