Animax has a patented technology for encapsulating the trace elements copper, cobalt, iodine and selenium in boluses that are administered to sheep, cattle and their young. The boluses lodge in the animal’s digestive system, releasing a controlled dosage of the supplement over a six-month period. This is highly complementary to Carr’s feed block format in which trace elements and other supplements are administered via a lick. Post-acquisition, Carr’s will sell Animax’s products through its sales channels across the USA, New Zealand, Europe, the UK and Ireland. 

Animax is based in Suffolk. Together with sister company Clinimax, a manufacturer of patented specialist disinfectant products for the medical industry, it generated £0.6m EBITDA for the year ended November 2017. The initial cash consideration payable for the two companies is £6m (excluding £1.2m cash acquired with Animax), with an additional £2.5m cash consideration based on performance payable over the period to November 2020. This is payable from the group’s existing facilities. We revise our estimates (FY19 EPS up 1.9%, FY20 up 3.6%) to reflect management expectations that the transaction will be earnings enhancing in FY19. The initial consideration payable, net of cash acquired, is 8.0x historic EBITDA, slightly less than the historic EV/EBITDA multiple for Carr’s of 9.0x.

Despite the estimates upgrade, our updated DCF analysis gives an indicative value that remains at 178p because of the cash cost associated with the transaction. At the current share price, Carr’s is trading below its peers with regards to mean P/E (11.7x vs 14.0x) for the year ending August 2018. As discussed in our April note, continued recovery in the US feed block market and further confirmation of the Engineering upturn should help close the valuation gap.