Treasure Chest | May 24 2021
This story features EBOS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: EBO
FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Pfizer will now distribute its PBS medicines via a wholesale model and Ebos Group is one wholesaler/distributor that will benefit
-Pfizer decision expected to lift annual earnings for Australian distributors
-Animal care is a substantial growth business for Ebos Group
-Ebos Group has track record in execution, brokers point out
By Eva Brocklehurst
Pfizer, a name increasingly front of mind because of the pandemic, will move to a wholesale distribution model for its pharmaceuticals from September 2021. Yet, to allay any hopes/fears at the outset, this does not include the covid-19 vaccine (at this stage).
The move, which reflects more equitable access to Pfizer's Pharmaceutical Benefit Scheme (PBS) medicines across Australia under the Community Service Obligation model, has implications for Ebos Group ((EBO)) and peers in that it reduces the risk of large drug companies ramping up to deal direct.
Other benefits include an uplift in revenue and profitability. Jarden estimates a corresponding annualised earnings (EBIT) uplift of around $6m, based on the contract signed by Australian Pharmaceutical Industries ((API)) with Pfizer.
That company has indicated a $4m EBIT uplift on an annualised basis and Macquarie notes the agreement will generate a higher margin than the existing pharmacy distribution business. The new agreement provides access to drugs such as Advil, Viagra and Lipitor which the broker assesses should provide around $100m in sales for Australian Pharmaceutical Industries.
The decision by Pfizer has also been supported by the Pharmacy Guild of Australia because there are better efficiencies for community pharmacies and brokers anticipate Sigma Healthcare ((SIG)) will be the third beneficiary.
Ebos Group is a large diversified, New Zealand-headquartered, Australasian wholesaler and distributor of medical products, including equipment and consumables, as well as consumer healthcare products and animal care brands.
Animal care is a strong growth business for Ebos Group as Jarden notes first half revenue was up 16% and operating earnings up 21%. The broker highlights the company's leading brands in Australasia such as Blackhawk and Vitapet and its 50% stake in the Animates retail stores.
Woolworths ((WOW)) and Coles ((COL)), the broker points out, have both made further inroads into the pet food category, with the former starting an online store and the latter launching its own Elevate range.
Based on analysis by Coles its customers are spending 50% more on pets today compared with two years ago. Jarden adjusts estimates for Ebos Group to include the changes to the Pfizer model and to factor in a stronger animal care industry.
Stronger medium-term growth, coupled with a lower weighted average cost of capital, lifts the broker's target by 17% to NZ$35. Jarden, not one of the seven stockbrokers monitored daily on the FNArena database, has an Overweight rating based on defensive growth, a track record of execution and solid valuation support.
Credit Suisse recently resumed coverage of Ebos Group and expects 16% growth in earnings per share in FY21. The broker asserts the market is underestimating the value of the high-growth and profitable animal care division. The company has also capacity on the balance sheet for acquisitions.
Brokers on the database are yet to comment on the implications for Ebos Group of the Pfizer decision and there are two Buy ratings and three Hold. The consensus target is $28.87, signalling -5.6% downside to the last share price, with the added observation only three of those six set a price target in Aussie dollars.
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For more info SHARE ANALYSIS: API - AUSTRALIAN PHARMACEUTICAL INDUSTRIES LIMITED
For more info SHARE ANALYSIS: COL - COLES GROUP LIMITED
For more info SHARE ANALYSIS: EBO - EBOS GROUP LIMITED
For more info SHARE ANALYSIS: SIG - SIGMA HEALTHCARE LIMITED
For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED