Update: Zooplus's Results For The First 9 Months Of 2014

| About: ZOOPLUS AG (ZLPSF)
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Summary

In October I published a long thesis on online pet supply retailer Zooplus.

Since then the company has announced its 9-month results and a capital increase.

Results for the first nine months and management expectations for the full year were strong.

Management is taking advantage of the risen share price to raise additional equity.

On October 23th I published an article on Zooplus (OTC:ZLPSF) that was included as a Pro Top Idea on this website. In it I made a case for the long-term attractiveness of the company's online pet supplies business largely based on its fast growth and the possibility for margin expansion. Investors at the time seemed wary of the high P/E while not fully realizing the stock was cheap relative to its peers on a price/sales metric and PEG metric. I pointed out that the likelihood of margin improvement was significant since management was keeping margins down intentionally in order to grow faster. Since the article was published, Zooplus shares have done very well. In my article I stated the shares traded near €55.05 at the time, while they have risen to trade at €68 currently (23.5% appreciation).

The company has since released its results for the 9-month period of fiscal year 2014 which strongly corroborated my bullish thesis. The company's sales growth accelerated to 31.5% from 29% a year earlier while management upped the full year guidance for 2014. The sales target was raised (again) to €550 million for the full year (up from €530 million earlier). Guidance for full year EBT was raised from €6 million to €8 million. Concerning the long term outlook Zooplus's management is now eyeing sales in 2017 of €1100 million which is above the estimates I modeled in my article mentioned above. My most positive scenario predicted €1035 million in 2017 sales. The company's third quarter was especially strong with sales increasing 35.8% year-on-year, while earnings before taxes, albeit still at relatively modest levels, showed strong improvements as well. The earnings improvement, as predicted in my article, resulted from the strong leverage effect of increasing sales versus the fixed costs base.

The market has responded positively on Zooplus's results from operations and has sent its shares much higher following the earnings announcement. Management also announced a capital increase around 10% of the current share base to raise additional equity to be used for further expansion into Europe. Unfortunately, this will dilute the existing shareholders by roughly 10%, but the timing is very smart in my opinion. The additional cash will also serve to propel growth and possibly lower distribution costs on deliveries in certain European countries due to the establishment of a new distribution center in France, which will be the fourth one after Germany, the Netherlands and Poland. I consider the capital increase to be in the long-term interest of the company since the capital raised will benefit its long-term growth and competitiveness. At the same time management has kept dilution to a minimum by timing the capital increase smartly after a significant share price increase. Overall, I'm very much impressed by the company's performance and I am glad it supports my conviction that Zooplus has strong potential to become the dominating pan-European online pet retailer.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.