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Premier Veterinary Group Plc – Pets win prizes, Zeus Capital comment

Premier Veterinary Group Plc (LON:PVG) is a leading provider of preventative healthcare programmes in UK, Denmark, France, Germany, the Netherlands and the US to the veterinary sector. We believe the company has a highly scalable business model with a solid recurring revenue base, providing a good platform for growth, which the company is pursuing throughout Europe and the US.

  • Business model overview: Premier Veterinary Group enables veterinary clinics and hospitals to provide preventative healthcare plans for companion animals. PVG is involved in all aspects of preventative healthcare plans and provides IT infrastructure, administrative and sales support to veterinary practices to allow the sale of the company’s monthly subscription product, Premier Pet Care Plan (“PPCP”). This is a recurring revenue stream that is highly scalable with a low investment required for growth.
  • Key attractions: PVG has a diverse, sticky customer base with a churn rate of just 1.8% in 2016A, providing good visibility on revenue. The company benefits from a strong recurring revenue base with compounding growth potential. Significant investment in IT has been made, developing a bespoke, highly scalable IT platform which underpins international operations, allowing the company to pursue an aggressive rollout of its PPCP product internationally. The company has no bad debt exposure, collecting the full amount of direct debit fees due before passing the remaining cash on to the veterinary practices.
  • Forecast assumptions: We forecast a 3-year revenue CAGR of 68% out to 2019E, driven by continued growth in the company’s existing territories, with expansion into new geographies generating further incremental growth as the company progresses the international rollout of the PPCP product. Through the forecast period revenue from the US grows faster than other territories. In the US, the company achieves a significantly higher gross profit per transaction which delivers a superior contribution to the bottom line.
  • Valuation potential: The Premier Veterinary Group Plc currently trade at an EV/EBITDA of 37.6x and a P/E of 60.3x to FY18, falling quickly to 4.5x and 4.6x respectively in FY19 based on our forecasts. We believe there is potential for the company to reach £10m of EBITDA over the medium term if the US rollout is successful, and we see an increased uptake in Europe. We see no reason why this should not be a £150m+ business if they deliver £8m – £10m EBITDA based on current peer group valuations.