A BROKER’S VIEW

Diversified, defensive sectors a recipe for continued returns

Company: Ebos Group Limited Sector: Healthcare Overview: Ebos Group completed a rare coup for a New Zealand company with its acquisition of Symbion, Australia’s leading pharmaceutical wholesaler and distributor by revenue and a leading veterinary wholesaler. The acquisition makes Ebos a leading player in Australasia, complementing its strong portfolio of New Zealand brands in the same sectors. It makes Ebos the third largest company on the NZX in terms of revenue. Pros: Ebos has a solid history of astute acquisitions and its $1.1 billion splash on Symbion appears to be in the same boat. The acquisition included cash of $367 million, the assumption of $230m of Symbion’s debt, with the remainder being paid with the issue of shares to the former owners of Symbion, Zuellig Group. Net profit after tax is expected to increase significantly to around $95m due to the transaction, putting the company on a competitive price to earnings ratio of 15, in line with the market average. Outperformance of these expectations could come from synergies gained from integration of the Symbion business. This is something Ebos’s management has managed to achieve consistently in the past, with 20 acquisitions in the past 12 years delivering investors compounding returns of 19 per cent per annum. Healthcare and animal care are also generally defensive and resilient sectors. Ebos has also been advised by Crown-owned Health Benefits that it is the ‘‘preferred respondent’’ to streamline the distribution of medical supplies across the national public hospital network. Cons: Due to its increased Australian presence New Zealand investors can no longer expect to receive fully imputed dividends. Ebos will continue to pay out about 60 to 70 per cent of its profit in dividends, which equates to a dividend yield of four to five per cent. The increased Australian presence will also leave Ebos more exposed to the strength of the New Zealand dollar; any weakening of our dollar will benefit the company. There is also the usual execution risk associated with an acquisition the size of Symbion. Price performance: The last two years have been very kind to Ebos investors with the stock ticking up 34 per cent in 2012 and another 27 per cent in 2013. Investment outlook: Relatively attractive at these levels, with upside from merger synergies and new contracts. Ebos is a company with diversified exposure to defensive sectors. It could benefit from increased profile and liquidity with an upcoming Australian listing.

A Broker’s View is written by Grant Davies, NZX Associate Adviser, employed by Hamilton Hindin Greene. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through www.hhg.co.nz.