Company Reports

Ebos' revenue increased 10% to AUD 13.5 billion in fiscal 2026 year-on-year. Yet, margins decreased and underlying EBITDA rose only 5%, in line with guidance. Its recent capital expenditure spree is complete, with focus shifting to driving efficiencies from new infrastructure. Shares rallied 8%.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is well placed within the industry. Its large scale and efficiency of operations translate into better operating margins than most peers and an ability to earn economic profits at a time when most competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 3% per year, largely driven by aging population growth, and the major participants to at least broadly maintain their existing market shares.

We transfer coverage of Ebos Group, a leading pharmaceutical wholesaler in Australia and New Zealand. The group also operates an animal health product wholesale, manufacturing, and retail business, as well as undertaking third-party logistics services.

Ebos marginally lowered its full-year underlying EBITDA guidance by 2% at the midpoint to AUD 610 million-AUD 620 million. While underlying consumer demand is steady, higher fuel prices are driving up the costs of transportation and packaging.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is well placed within the industry. Its large scale and efficiency of operations translate into better operating margins than most peers and an ability to earn economic profits at a time when most competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 3% per year, largely driven by aging population growth, and the major participants to at least broadly maintain their existing market shares.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is well placed within the industry. Its large scale and efficiency of operations translate into better operating margins than most peers and an ability to earn economic profits at a time when most competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 3% per year, largely driven by aging population growth, and the major participants to at least broadly maintain their existing market shares.

Ebos' interim 2026 underlying EBITDA grew 3% to AUD 300 million. Sales rose 13%, but profitability fell on lower-margin weight-loss drugs and a margin-dilutive New Zealand acquisition. Full-year guidance was reaffirmed, implying second-half underlying EBITDA lifting to roughly AUD 325 million.

Ebos shares fell 30% in 2025, with its Chemist Warehouse contract taken by Sigma in July 2024 and facing much stronger competition following Sigma's acquisition of Chemist Warehouse in February 2025. In October, Ebos reaffirmed fiscal 2026 EBITDA guidance, implying roughly 5% organic growth.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is well placed within the industry. Its large scale and efficiency of operations translate into better operating margins than most peers and an ability to earn economic profits at a time when most competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 3% per year, largely driven by aging population growth, and the major participants to at least broadly maintain their existing market shares.

Ebos grew underlying fiscal 2025 EBITDA by 8%, with 18% sales growth in higher-margin medical technology. However, fiscal 2026 guidance implies just 5% organic EBITDA growth due to higher costs and softness in discretionary pet products. Shares reacted negatively, down 15%.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is well placed within the industry. Its large scale and efficiency of operations translate into better operating margins than most peers and an ability to earn economic profits at a time when most competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 3% per year, largely driven by aging population growth, and the major participants to at least broadly maintain their existing market shares.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is best placed within the industry. Its superior scale and efficiency of operations translate into better operating margins than peers and an ability to earn economic profits at a time when competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 1.5% per year, in line with population growth estimates, and the major participants to at least broadly maintain their existing market shares.

Ebos is raising up to AUD 250 million, at about NZD 36.65 per share, through an AUD 200 million institutional placement and an AUD 50 million retail offer. The company also acquired SVS Veterinary Supplies for NZD 115 million. The SVS deal completed on March 31, 2025.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is best placed within the industry. Its superior scale and efficiency of operations translate into better operating margins than peers and an ability to earn economic profits at a time when competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 1.5% per year, in line with population growth estimates, and the major participants to at least broadly maintain their existing market shares.

Narrow-moat Ebos grew first-half fiscal 2025 underlying revenue and underlying EBITDA by 10% and 7%, respectively, driven by a strong performance in community pharmacy. Management reiterated a full-year underlying EBITDA guidance range of between AUD 575 million and AUD 600 million, implying between 5% and 10% underlying growth on last year. We leave our earnings estimates broadly unchanged including our fiscal 2025 underlying EBITDA forecast of AUD 583 million on an AASB 16 basis. We maintain our fair value estimates of AUD 28.50 per share and NZD 31.50 at current exchange rates.

We maintain our fair value estimate of AUD 28.50 per share (NZD 31.50 at current exchange rates) and our earnings estimates for narrow-moat Ebos. Shares in Ebos have traded sideways since reporting in August 2024. In October 2024, the company reiterated fiscal 2025 guidance of underlying EBITDA between AUD 575 and AUD 600 million after underlying EBITDA grew 7% for the first three months of fiscal 2025. Our fiscal 2025 underlying EBITDA forecast of AUD 583 million, on an AASB 16 basis, is unchanged and compares with fiscal 2024 underlying EBITDA of AUD 624 million. Shares remain overvalued, with earnings set to rebase lower following its Chemist Warehouse contract ceasing at fiscal 2024 year-end.

Narrow-moat Ebos reported fiscal 2024 revenue of AUD 13.2 billion and underlying EBITDA of AUD 624 million, up 8% and 7% respectively, in line with our expectations. The result was driven by acquisitions and 12% revenue growth in Ebos’ institutional segment due to growth in its hospitals and medical technology businesses. We maintain our fair value estimate of AUD 28.50 (NZD 31.50), and our long-term earnings estimates are broadly unchanged. Our fiscal 2025 underlying EBITDA forecast of AUD 583 million is within management’s guidance range of AUD 575 million to AUD 600 million. Shares remain overvalued with earnings set to rebase lower following its Chemist Warehouse contract ceasing at fiscal 2024 year-end.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is best placed within the industry. Its superior scale and efficiency of operations translate into better operating margins than peers and an ability to earn economic profits at a time when competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 1.5% per year, in line with population growth estimates, and the major participants to at least broadly maintain their existing market shares.

We maintain our AUD 0.78 fair value estimate for no-moat Sigma Healthcare and our AUD 28.50 (NZD 30.50) fair value estimate for narrow-moat Ebos. Due to the significant risk of regulatory resistance, we still do not factor Sigma’s potential acquisition of Chemist Warehouse in our base case. This would markedly increase competition for Ebos and be a major structural change for the pharmacy sector. The Australian Competition and Consumer Commission could have given the green light for the deal but instead provided a Statement of Issues outlining preliminary competition concerns at both the retail and wholesale level. Due to the potential merged group being uniquely vertically integrated, the ACCC thinks it could raise barriers to rivals expanding or entering, which may lessen competition. The deal is conditional upon receiving regulatory approval, and our fair value estimate for Sigma implies roughly 30% downside to the current share price. The ACCC will continue its review before a final decision is expected on Sept. 5, 2024.

Australia’s Pharmaceutical Benefits Scheme, or PBS, drug wholesalers face regulation that caps gross margins for distributed drugs at 7% for community pharmacy and 10% for hospitals, as well as ongoing price reform which lowers the prices for these drugs. However, Ebos is best placed within the industry. Its superior scale and efficiency of operations translate into better operating margins than peers and an ability to earn economic profits at a time when competitors are falling short. We do not anticipate the Australian government to make any major changes to the PBS. We forecast industry PBS-related wholesale and distribution revenue to increase at approximately 1.5% per year, in line with population growth estimates, and the major participants to at least broadly maintain their existing market shares.