Investors bullish on Apiam as ‘headwinds turn to tailwinds’

Special Report: The company is poised to reap the benefit of a multi-year consolidation strategy.

For animal health company Apiam Animal Health (ASX:AHX), the 2021 financial year marks an exciting opportunity for growth as it looks to capitalise on a multi-year consolidation strategy.

And investors are beginning to take notice, with the stock up more than 20 per cent in September as momentum continues into the 2021 financial year.

Speaking with Stockhead, Apiam MD Dr Chris Richards said the company was executing on its multi-channel strategy to drive revenues, while margins improved as costs stabilised.

Underpinning that growth is Apiam’s positioning as a leading provider of animal health and veterinary care to regional districts – a network that has paid dividends in the wake of the travel restrictions enforced during the COVID-19 pandemic.

Apiam now has a network of around 50 clinics serving regional and rural areas. And having laid the groundwork to fit out its clinics with improved technology, it now has a market-leading platform providing animal health services that historically have been hard to access in rural areas.

Strong demand for subscription service

“We’ve been investing in clinics over the past four years, so they now have the equipment and expertise to solve problems that would’ve previously been referred into capital cities,” Richards said.

“A good example is the introduction of in-house diagnostics into all of our clinics. That enables us to offer a lot more services around preventative care and screening for diseases.”

Richards said as a result of that improved service offering, the company had seen strong demand for its Best Mates program – a subscription service that allows customers to make unlimited appointments for a fixed monthly fee.

“So normally, you’d have a situation where someone might bring their dog in two or three times a year — our data shows that’s now increasing to up to eight times,” Richards said.

“They know they can come and see us when they have any concerns. And that program covers various treatments like dental care, blood testing and preventative screening.

“Plus there’s discounts on other products that they’d buy for their animals. So it really improves the healthcare for the animal, and improves the relationship we have with our clients knowing we can always offer the highest level of care to their pets.”

Analysts bullish on Apiam’s growth potential

With some strong momentum – both in terms of sector strength and operational momentum – Apiam has moved into the sights of a number of small cap analysts in recent weeks.

Among those with a bullish view is Jonathan Higgins, from advisory firm Shaw & Partners, who has a price target of 79c for Apiam stock.

“AHX trades at a discount of more than 50 per cent to ASX listed peers, it’s growing 3.5x as fast and remains a market leader in a consolidating sector,” Higgins said.

As part of his analysis, Higgins highlighted that Apiam shareholders were “poised to reap the benefit of a multi-year consolidation and distribution strategy”.

That extra groundwork and capital expenditure has left the business with a national distribution footprint with declining input costs – the ideal combination for a long-term improvement in gross margins.

Despite difficult trading conditions in recent years, Apiam had still managed to increase its gross margin rates by around 10 per cent annually.

But with a multi-channel revenue strategy in place along with increased expansion capacity, Shaw expects EBITDA margins to rise towards a sustainable 14-15 per cent in the years ahead.

“We’ve made strategic investments in business-support costs, new programs and new products, and we’re now seeing some good wins across all of those segments,” Richards said.

“That’s manifested as growth in our companion animal business as well as our professional dairy consultancy service. And now we’re finding momentum in our private label strategy.

“So we’ve really invested significantly in the last four years. At the same time, we’ve also had significant headwinds across the different areas of our business, and they’re also turning into tailwinds at the moment.”

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.