Special Report: The company is rapidly scaling up its operations to meet demand as population rates surge in key regional growth corridors.

For animal health company Apiam (ASX:AHX), a number of tailwinds are converging in 2021 as the company establishes a dominant market footprint for regional pet care.

And with a multi-year capex program for its operational systems now complete, the company is well placed to capitalise on some positive macroeconomic trends, MD Dr Chris Richards said.

Richards caught up with Stockhead recently to discuss Apiam’s 2021 outlook, where the company will be “pretty aggressive” chasing growth in response to changing population demographics.

“If you look at the (post-Covid) macro picture, you’ve got this big increase in pet ownership. And it’s not just a numbers game, these are expensive pets where the new owners are looking for premium vet services,” he said.

“Then the second part is the demographic change, where more people are moving to these key growth corridors that sit within 150km of the capital cities.”

Property data released this week showed that home values in the regional districts of Victoria and NSW are surging as more people move away from the city.

“And the other thing is that within these regions, we’re the biggest player. There are two other large corporates in the vet space but they’re mainly focused on city-based cat and dog practices – they don’t have the farm animal capabilities and resources that we have to service these markets,” Richards said.

Multi-year growth strategy

Viewed in aggregate, the macro backdrop presents a generational market opportunity for a large veterinary and animal health practice with regional expertise to capitalise. And Apiam plans to do just that.

“Going forward we want to get the message to the market that we’re going to be pretty aggressive in developing our clinics and targeting acquisitions to serve those high-growth corridors and regions,” Richards said.

As an example, he cited the recent acquisitions of two vet clinics in the regional Victorian towns of Warrigal and Hamilton.

“We built synergies straight away by applying our Best Mates subscription care service, so there’s immediate organic growth there.”

“The thing to emphasise is ‘regional’ isn’t in the outback, it’s within a 30 minute drive of a capital city and that’s really important,” Richards said.

“So if you look at high-growth regions of say Victoria – Bendigo, Geelong, Shepparton — they’re the places where we’re acquiring or building out new clinics.”

Richards added that Apiam’s capital position means it can focus directly on applying resources to improve its customer service offering.

“In terms of capex on operating systems and corporate infrastructure, we’re basically set now,” Richards said.

“So we’re generating organic growth and growth by acquisition, and we’re leveraging it all across a fixed cost base from a corporate point of view.”

By extension, that momentum in top-line sales is flowing through to increased profit margins and an improved bottom line.

“What people tend to look at is our revenue, but looking underneath that the business is changing,” Richards said.

“We’re getting higher numbers in our gross margins segments, and as you go down the P&L the numbers are increasing.”

As an example of its operating leverage, Apiam’s recent acquisition in Dubbo allowed it to merge two clinics together, thus reducing its operating cost base.

And the June half-year is shaping up as an extremely busy one as momentum increases.

The group has just opened a new veterinary clinic in Torquay North, Victoria, with another clinic set to open soon in Shepparton.

“The key for us is that we build clinics that are large enough to support 6-10 vets and generate $5-6m in annual revenue,” Richards said.

“We don’t build little clinics, we build clinics where we can really leverage the investment we put into them, which should flow through to a 20 per cent plus EBIT margin.”

“The clinic we opened last week (in Torquay) was generating revenue from day one including having four customers join our Best Mates program. So immediately it’s delivering on our strategy,” Richards said.

“So I can see us doing three-to-four of those a year as we expand into these new growth corridors, with new large subdivisions happening in those regions.”

And with its systems groundwork now complete, Apiam is now in pole position to establish itself as the heavyweight in Australia’s premier regional vet and animal health sector.

This article was developed in collaboration with Apiam, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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