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From farms to fur babies, Apiam (ASX: AHX) is flying
Victorian-based veterinary products and services provider Apiam Animal Health (AHX) is a stock that taps into two strong tailwinds.
The first is Australians’ love of pets. Even before the pandemic, Australians spent $12.2 billion a year on their pets – feeding them, adopting them, and buying them toys, accessories and services – and that amount is expected to have surged in the wake of COVID. The Australian Bureau of Statistics (ABS) reckons Australians’ spending on pets and accessories has swelled by 11%.
The second is the burgeoning confidence in Australian agriculture, after the skies opened over Australia in 2020, refilling dams, replenishing withered rivers and giving fresh hope to farmers.
The common element to both themes is animals. Apiam is a vertically integrated animal health business, which splits its business into production (farmed) and companion (pet) animals.
In the production animal industry, Apiam serves the pig, sheep, poultry, feedlot cattle, and dairy cattle sectors, helping farmers to maintain productivity and profitability through on-farm service by trusted vets, who help primary producers to assess and monitor the health of their stock. In its largest production-animal business – dairy – Apiam launched its ProDairy consultancy in August 2019, offering dairy farmers an end-to-end service by Apiam consultants which includes analytics on herd performance and milk production performance and training farm staff on practices such as calving, raising calves, and mastitis treatment. So far, dairy farmers accounting for about 10% of Victoria’s dairy cows have subscribed to the program.
In the companion animal sector, Apiam’s vets treat all kinds of household pets (this division also contains the equine veterinary business.) While a series of acquisitions have given the business a number of different veterinary brands, Apiam has begun the process of putting its companion animal and mixed-practice clinics located throughout regional Australia under the flagship brand, Fur Life Vet.
In the companion animals business, Apiam launched its Best Mates program in July 2019, encompassing a whole-of-life health and wellness program with an annual subscription charge, paid monthly, offering total care for pets. For $550 a year for a first Pet – and $485 a year for additional pets, and annual renewal per pet – the Best Mates program gives members unlimited free vet consultations all year-round, plus discounts on essential services and items such as diagnostic tests, medications and vaccinations, de-sexing, blood testing, preventative screening, parasite treatments, dental work, and pet food.
Apiam says the upsurge in demand for pets, both from breeders and adoption services, on the back of COVID has been good for its vets, because new pets usually come with an immediate requirement for many vet services – such as vaccinations, check-ups and de-sexing.
Also, the COVID-inspired increased pet ownership flowed through to quarterly growth rates in Best Mates membership of more than 50% through the 2020 calendar year.
Apiam is also benefiting from a deal it struck in October 2019, well before COVID hit Australian shores, to acquire the distribution rights for Zoono’s (ASX: ZNO) Z-71 Microbe Shield disinfectant, which lasts for up to 30 days on surfaces and is effective against COVID-19.
In FY20, these trends helped revenue rise by 6%, to $118.4 million, while net profit surged 32% higher, to $4.2 million. The fully franked full-year dividend was 2 cents a share, up 25% on the 1.6 cents a share that was paid in FY19 (and FY18).
This was a particularly impressive result given that revenue from the beef feedlot and pig industries suffered from a decline in the food services trade as a result of the pandemic.
The business is off to a strong start in the current financial year, too. In the September 2020 quarter, revenue (unaudited) was $29.6 million, 14.1% higher than Q1 in FY20, while gross profit (unaudited) was $16.6 million, up 21.2% on Q1 FY20.
Apiam is also expanding beyond Australia, in areas such as the pig and turkey industries in the US, sheep genetics and consultancy services in China, and vaccine export opportunities. At present, it provides veterinary consulting services provided more than ten countries.
Apiam listed on the ASX in December 2015, and saw its $1 shares surge as high as $1.71 by September 2016: that was as good as it ever got for AHX, with the shares slowly declining to a nadir of 38 cents at the worst of the COVID Crash in March 2020. It has recovered to 57 cents, which capitalises Apiam at $69 million.
But the strong tailwinds that have emerged for Apiam lately could benefit investors looking at the stock now.
If the company maintains its fully franked dividend of 2 cents a share this year and next – being conservative – AHX, at 57 cents, would yield 3.5%, or 5% grossed-up. There is only one price target in the market: Shaw & Partners, which has a price target of 79 cents for AHX.
On those numbers, and the headwinds behind it, investors can certainly make a case for buying Apiam Animal Health.
