What Are EBO Shares Worth?

After a good FY announcement boasting $168.3m NPAT, up 16.5%, let’s do some quick sums to see what the share price could be worth.

Current MC at the time of writing is $4,267m (share price of $26), less cash equivalents (current assets – current liabilities) of $252m, divided by NPAT of $168.3m gives a ratio of 23.85. That’s a good deal for a company with such a growth history.

If they were to continue to grow at such a rate, they might command a ratio closer to 26.5 (which is conservative based on the fact that the growth isn’t guaranteed, as it could be with a subscription based business with investment in sales). Such a ratio would put the share price closer to $28.

Given the above, without delving too much into the details of the most recent presentation, guidance and outlook, I’d say these are a buy at $26.


EBO Update

It’s been a few months since I found value in the Ebos share price. Not much has changed, other than a note regarding refinancing and the performance throughout COVID19 (I felt that the important line in the announcement was that “…┬áthere is no indication that the Group will not meet its previous guidance for FY2020…”).

Based on this, there is no need to add debt to the Market Capitalisation (MC) when calculating the ratio of NPAT to MC, because the debt is renewed (derisked) and will be a BAU cost going forward.

Given this, with an estimated FY20 NPAT of $164m (no need to reduce that number for the effect from COVID19 since they’ve said that it hasn’t affected guidance), and an MC of $3,636m, this gives rise to a ratio of 22. Even with my more pessimistic estimate of NPAT of $130m, this is a ratio of 28.

All things being the same, I think EBO is still a good buy at the current share price, given the growth rate of this company. The note about the performance being within previous guidance and refinancing in a lower interest rate environment give rise to the opportunity for Ebos to outperform in the coming year (though I am still very concerned about an impending recession).


What’s Going On With The Ebos Share Price?

Not too long ago I published an article in which I found value in the Ebos share price. That value is still there and the share price isn’t reacting accordingly, so what’s going on?

Well, as per the announcements on the NZX website, Sybos Holdings Pte Limited who is a significant shareholder is selling down. This massive supply of shares for sale to the market its pushing the share price down. Once Sybos has finished selling the volume that they want to sell, I expect the share price to trend upwards.

An obvious question is “Why are Sybos selling their shares?”. Well, they’ve been selling since November, and there has since been market announcements that haven’t suggested that there is anything untoward going on, so I can only speculate.

Who Is Sybos Holdings Pty Limited?

According to the NZ Herold, Sybos is a unit of Hong Kong-based Zuellig Group, which came on as a cornerstone shareholder when it sold the Symbion pharmaceutical business to the listed firm.

Given this, it’s possible that Sybos knows something about the industry, but I think it’s more likely that they are just taking the money out of the business that they originally wanted to get rid of when they sold it to Ebos.

It’s not uncommon for a company to sell a business in exchange for money and scrip (shares in the company they’re selling the business to). It’s usually done so the purchasing party can buy with less cash and have confidence that the purchase is a performing asset. The benefit to the selling party is that they can effectively get a better deal because part of the value if the sale can be realised after an additional period of growth, and they can negotiate a higher price based on the success of the asset (or a lower price if the asset underperforms, which never happens because you would deal in scrip if you believed the asset was to underperform; you’d take less money on an outright sale instead).

Based on this, I believe there is probably nothing insidious going on, and (coupled with my previous analysis) that Ebos shares are currently a buy for traders and investors alike (though a trader may choose to hold off until Sybos is closer to being sold up).

Note: The good thing about buying during such a large sell down is that it’s easy to work out the selling range based on analysis of daily trades.

Addendum: Most folk would agree that it’s a bad time to be investing, but I would argue that (you’re not wrong, but) Ebos is a defensive stock because it’s healthcare. To support this assertion take a look at historic share price throughout the GFC.


EBO Quick Analysis

Ebos Group (EBO) is a company that operates broadly within the healthcare industry. That is to say that they are heavily integrated within the healthcare system, but also have front facing B2C aspects like pharmacies, vitamins (Red Seal), and pet supplies (Animates, Vitapet, etc.). They have an exceptional history of successfully managing inorganic growth through acquisitions, and steadily growing profits.

I’m just doing a quick and dirty analysis of the current share price because I’m somewhat familiar with the company, and just want to see if there’s any value to be had in the current share price. Also, I’m quite tired, so please bear with me.

The current market capitalization for EBO is $3,574.724m. Recent first half NPAT is about $81.7m (I’ll use the lower, statutory NPAT over the normalized, Underlying NPAT). Lets double that to use it as an annual NPAT (~$164m). Now lets take $20m from that to represent the increase in NPAT from the $30m (an additional ~16%) improved pharmacy revenue from an increase in the sale of discretionary items. Actually, rather than try to work out an increase in discretionary sales across every aspect of the business, lets just take a pessimistic 15% from the profits for the oncoming recession – it’s all a guess anyway, right? Lets say forward NPAT will be $130m.

While the coming recession may cause NPAT to take a hit, Ebos recently announced that this last quarter has been very successful with demand on healthcare. I chose a pessimistic approach, because there’s no need to look at it any other way with risk ahead vs relatively safe harbour of money in the bank.

Net Debt is $392m (a decrease on last year). That’s a lot of money, but they seem to be handling it (they are going through refinancing soon), and interest rates are looking increasingly favourable.

With earnings of $164m, this gives rise to a MC/NPAT ratio of just 22. What a bargain for a company with double digit percentage growth. The numbers still look exciting if we add debt to the MC to represent a CR if they cant refinance, giving a ratio of ~24.5, but that probably wont happen. If we consider NPAT more pessimistically at $130m, this gives a ratio of about 27.

All of the above look quite attractive for a company with double digit growth in its history. Even using the pessimistic values, that’s still quite a favourable ratio, which is likely to drop in 2 years to about 20, then further in future years.

In my opinion, this stock is not only a safe harbour as a company that could benefit from increased healthcare demands and not suffer as much as others through a recession, but is also currently offering some good value.

That said, I do recommend you do your own analysis because as I mentioned earlier, I’m quite tired while doing this research.

Good night!


Ebos Group Limited (NZX:EBO & ASX:EBO)

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