EBOS Group Limited

EBO Details

Update on Capital Change: EBOS Group Limited (ASX: EBO) is a health care and animal care products group with many top brands.  On 25 August 2021, the company informed the market that it has issued 5,258 fully paid ordinary at an issue price of NZ$31.61 per security.

FY21 Key Result Highlights:  

• Rise in Total Revenues: During the period, the company’s total revenues rose 5% year over year to $9.2 billion, owing to growth in its Healthcare and Animal Care segments.
• Increase in Underlying Net Profit: In FY21, the company’s total underlying NPAT rose 15.5% year over year to $188.2 million, owing to growth in its Healthcare and Animal Care segments.
• Robust Segmental Performance: During the period, the company’s healthcare segment witnessed a revenue growth of 4.4% year over year, which came in at $8.7 billion. The increase was aided by higher revenues from Australian businesses, which witnessed a growth of 3.7%. Animal Care segment revenue increased 17% year over year and came in at $497.5 million, on the back of the robust performance of its branded product portfolio.
• Liquidity Position: The company’s cash balance stood at $168.95 million. At the end of 30 June 2021, the company’s net debt to EBITDA ratio of 0.85x. Return on Capital Employed for the period stood at 18%, depicting robust earnings growth.

Revenues Highlights; Analysis by Kalkine Group 

Key Risks: The company is exposed to foreign currency risk and interest rate risk. Further, lower investment in generating working capital requirement exposes the company to liquidity risk. The company also increased investment in R&D, to achieve its growth plan, which might weigh on margins, going forward.  

Outlook: With enhanced capabilities, the company is likely to provide long-term growth opportunities to both its existing and new Original Equipment Manufacturers in the Australian and New Zealand markets.  The company’s current gearing continues to provide headroom for future investments and acquisitions. Despite the challenges of COVID-19, the company strives to generate further growth in FY22. 

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of EBO gave a positive return of ~64.51% in the past one year. The stock is currently trading close to its 52-weeks’ high level of $34.84. The stock has a support level of $33.1 and a resistance level of $35.1. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, considering increased investment in R&D, foreign currency risk, interest rate risk, COVID-19 led uncertainties, etc. For the purpose of valuation, few peers like Sigma Healthcare Ltd (ASX: SIG), Probiotec Ltd (ASX: PBP), and others have been considered. Taking into account the aforesaid facts, current high trading levels & indicative valuation, recent rally in the stock price, and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $34.49 as on 30 August 2021, 1:30 PM (GMT+10), Sydney, Eastern Australia.

EBO Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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