Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

CVS Group - full year slightly better than forecast

Full year-like-for-like sales rose 8%, while Healthy Pet Club members rose 20,000 to 470,000.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Full year-like-for-like sales rose 8%, while Healthy Pet Club members rose 20,000 to 470,000. The group completed three acquisitions in the second half of the year, and net debt as a proportion of underlying cash profits (EBITDA) is expected to be "significantly" under 1 times.

Full year underlying cash profits are expected to be slightly ahead of market expectations.

CVS said: "the veterinary market continues to grow with the humanisation of pets and clinical advancement underpinning attractive and resilient long-term organic growth for the Group". CVS also remains mindful of inflationary pressures and the broader economic backdrop.

The shares rose 2.2% following the announcement.

View the latest share price and how to deal

Our View

There are now 24m cats and dogs in the UK, and by some estimates, 3.2m households bought a pet since the start of lockdown. As the saying goes, 'pets are for life'. Or, rather, 'a life of vet trips'.

That makes it a good time to be one of the UK's leading vet networks, like CVS Group. The group has over 500 veterinary practices across the UK, Ireland and the Netherlands, plus a handful of diagnostic laboratories and pet crematoria. They're supported by the rapidly growing Animed online veterinary pharmacy. As we shift to a more digital world there's reason to think this division will only build scale and become more profitable. Offering services across the broad spectrum of pet needs helps CVS capture as much revenue from owners as possible.

Since listing in 2008, group earnings per share have grown steadily, fuelled by the acquisition of small independent vet practices. Keeping acquisitions small limits the risk of each individual deal, and new practices get maximum benefit from the wider group's buying power.

Acquisitions remain key, especially in the more fragmented Irish and Dutch markets. The group's als o open to entering new geographies; and with less competition in Europe, deals on the continent are cheaper. Net debt, as a proportion of cash profits, is well under one, giving CVS the power to pounce on any larger deals as they emerge.

The group's also paying attention to organic profit growth. Better integration allows costs to be streamlined. Effectively cross-selling services like Animed and the crematoria could boost sales at minimal cost. The 470,000-member Healthy Pet Club, which provides services and discounts to subscribers, should help on that front.

For all CVS's positives, it has one major weakness. The company relies on a ready supply of highly skilled professionals, and at times the supply has been anything but ready. The group's struggled to recruit staff in the past, and subsequent wage increases hit profit growth and the share price hard. While CVS has taken steps to mitigate that risk, it remains an industry wide challenge as veterinary demand increases. The costs associated with attracting enough staff to keep up with the pace of expansion, and keeping existing members happy, is holding margins back.

Conditions are about as favourable as they'll ever be right now, so CVS Group is making hay while the sun shines. We admire CVS Group's position and growth opportunities, but investors are paying for that strength, although we note the valuation is less demanding than it has been.

CVS key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Half Year Results (24 March 2022)

Half year revenue rose 11.4% to £273.7m, reflecting a 9.6% rise in like-for-like sales. There was organic growth across all business areas and underlying cash profits (EBITDA) rose 15.5% to £52.0m.

The group provided an update regarding the acquisition of Quality Pet Care Ltd, stating: ''Whilst we are naturally disappointed with the recent CMA decision following their investigation into our August 2021 acquisition of Quality Pet Care Ltd, (trading as 'The Vet'), we have offered undertakings to dispose of Quality Pet Care Ltd and all eight of its sites in order to resolve any potential competition concerns.''

In the Veterinary Practices, revenue rose 11.5% to £243.3m, reflecting strong organic growth. Underlying cash profits (EBITDA) rose from £45.8m to £52.1m.

A reduction in one-off Covid testing means revenue fell 4.3% to £13.3m in Laboratories. Underlying EBITDA rose 3.9% to £4.0m. Underlying EBITDA rose from £1.4m to £1.7m in the Crematoria business.

Animed Direct, the group's Online retail business saw revenue increase from £19.7m to £22.7m, reflecting improved product lines. Underling EBITDA also rose from £1.4m to £1.7m.

The group generated free cash flow of £18.9m, down from £36.1m reflecting unfavourable working capital movements.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 28th July 2022