New High-Value Products And Expansion Into Southeast Asia Will Create Future Opportunities

Key Takeaways

• Strategic acquisitions and new high-value products in healthcare and animal care promise revenue and earnings growth.
  
• Cost efficiency measures and IT investments aim to improve margins and support organic growth.
  
• The end of a major contract and execution risks in new initiatives may challenge EBOS's revenue and margin targets amid cost pressures and market uncertainties.

Catalysts

Engages in the marketing, wholesale, and distribution of healthcare, medical, pharmaceutical, and animal care products in Australia, Southeast Asia, and New Zealand.

• EBOS Group is targeting $300 million in new pharmacy revenues by FY '25 due to new customer wins and store expansions, which can significantly boost revenue growth.
  
• The company is well advanced in a cost efficiency exercise, aiming for $25 million to $50 million in savings over the next 1 to 2 years, expected to improve net margins.
  
• EBOS plans to continue strategic acquisitions, having completed several in the healthcare and animal care sectors, suggesting potential further revenue and earnings growth.
  
• Investments in operational infrastructure and IT within the Healthcare segment aim to support ongoing organic growth, potentially enhancing future earnings.
  
• The continued introduction of new high-value products in the Animal Care segment and the expansion into Southeast Asia presents opportunities for revenue and earnings growth.

EBOS Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EBOS Group's revenue will decrease by 0.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.1% today to 2.6% in 3 years time.
• Analysts expect earnings to reach A$335.3 million (and earnings per share of A$1.76) by about February 2028, up from A$271.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$374.6 million in earnings, and the most bearish expecting A$301.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.4x on those 2028 earnings, down from 26.9x today. This future PE is greater than the current PE for the NZ Healthcare industry at 10.9x.
• Analysts expect the number of shares outstanding to grow by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.29%, as per the Simply Wall St company report.

EBOS Group Future Earnings Per Share Growth

Risks

• The Chemist Warehouse Australia contract ended on June 30, 2024, which previously generated $2.2 billion of revenue for EBOS. This loss could negatively impact revenues if not adequately replaced by new business.
  
• The Community Pharmacy segment's growth target of $300 million in new revenues for FY '25 carries execution risk, particularly if they fail to secure new contracts or expand market share as planned, potentially impacting revenue growth.
  
• The potential delay in finalizing the first-ever pharmacy wholesale agreement with the Australian government could create uncertainty and may affect short-term sales and profit margins if not resolved favorably.
  
• While the cost-saving initiative plans to achieve $25 million to $50 million in savings, there are risks associated with the actual realization of these savings without impacting operational efficiency, which could influence net margins and earnings.
  
• Increased costs, specifically in areas such as IT and new marketing investments, might offset the $25 million in planned savings for FY '25, potentially putting pressure on net margins if growth does not meet expectations.

Valuation

• The analysts have a consensus price target of NZ$39.479 for EBOS Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NZ$44.96, and the most bearish reporting a price target of just NZ$31.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$13.0 billion, earnings will come to A$335.3 million, and it would be trading on a PE ratio of 25.4x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of NZ$41.55, the analyst price target of NZ$39.48 is 5.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.