Here's my outlook on NVL, I don't hold but company is...

Here's my outlook on NVL, I don't hold but company is interesting. Especially appealing that management are Ex-Greencross, this could turn out like the 'GEM of Vet Clinics'.

Assuming: FY16 EBIT of $8M
FY16 Cash of $11M
FY16 Debt of $11.7M

They currently have 35 Clinics which by my figures produce roughly $228 k per clinic. Average Cost per clinic was $1.29M, which equates to just over 5.5 x EBIT per clinic. This is OK, albeit at the higher end of valuation (I remember GEM were acquiring Childcare centres for between 4-5 x EBIT). Understand however that Vet clinics MAY have a higher ROI and better economic characteristics than Childcare centres do, by virtue of their specialist nature. This would command a premium obviously

Say they wanted to acquire another 15 clinics at $1.29M/Clinic by FY16 for a total outlay of $19.35M. This would bring in an extra EBIT per annum of $3.42M however they would breach their Debt covenants (Debt/EBITDA) and so they would need to have a cap raise.

Will be interesting to see how they finance further growth (I suspect there will be a cap raise sometime after FY16 or during FY17 but we'll see. We are yet to see how much cash flow each center is generating, or if they'll be allowed to expand their credit facilities too. I like the idea of consolidating Vet clinics but I don't believe each clinic has potential for a substantial amount of organic growth, and like all Roll-ups, they need to be cautious of Debt.