CVS Group expects to report full year revenue of £673mn reflecting like-for-like growth of 0.2%, held back by softer market conditions in the UK.
Underlying cash profit (EBITDA) is set to land around £134mn in-line with market expectations.
The group spent £29mn on the acquisition 15 sites in Australia. The disposal of the group’s Crematoria division has seen net debt reduce from £168mn to £131mn.
CVS’s results will now only be released on 7 October with a view to providing more clarity around the delayed decision by the UK Competition and Market’s enquiry into the industry. There was no financial guidance provided for the new financial year.
The shares rose 4.5% in early trading.
Our view
CVS Group’s seen growth in the UK market grind to a halt, but markets were encouraged that profits haven’t fallen short of analyst forecasts. There’s no guidance in place for the current financial year, but market forecasts are looking for growth of around 5% in both revenue and cash profit. Given the ongoing acquisition activity in Australia, that doesn’t set a particularly high bar for the UK business. Here, the ongoing regulatory probe by the CMA continues to cast a shadow.
Initial proposals from its investigation into the UK veterinary industry didn’t look too taxing. The potential for price controls appeared to be focused on cremations - a part of the business the group has disposed of. But pressure from consumer groups has seen the enquiry extended into next year, which creates further uncertainty for the company. Until proceedings come to a conclusion, UK acquisitions remain on hold.
CVS is a one-stop shop for pet needs - the biggest business is its hundreds of vet clinics. But it also operates an online pharmacy – Animed, and a Laboratory division that provides diagnostic services. The veterinary sector certainly has its attractions. People will spend on their furry companions, especially when it comes to health, no matter what's going on in the economy. The pandemic has seen pet ownership increase massively too.
And not only this, but the way we treat our animals is playing into the hands of vets. So-called humanisation of animals means we're more willing to part with cash on check-ups and treatments for every sniffle and tummy upset. Half a million of us are signed up to the Healthy Pet Club subscription service, which makes custom even stickier.
Acquisitions remain key, with the focus now firmly on Australia, where similarities with the UK market should allow smooth integration into the group. The recent sale of the Crematoria has made a welcome dent in the company’s debt levels, freeing up significant headroom for further deals. Meanwhile, the modest dividend yield looks to be well covered by cash flows. Of course, no shareholder payouts can be guaranteed.
Despite a strong recovery so far this year, the current valuation is still well below the long-term average. We feel this represents an opportunity for investors to invest in a high-quality business with growth potential.
While the risks surrounding regulatory intervention look to have been reduced, it’s important to note that the CMA investigation is still not complete. That and the ongoing challenges to the UK economy mean there could be further ups and downs ahead.
Environmental, social and governance (ESG) risk
The healthcare industry is largely medium-risk in terms of ESG, with companies in Europe and the US trending toward the lower end of the spectrum due to more stringent regulations. Risk also varies by subindustry, with Pharmaceuticals categorised as medium/high risk due to higher exposure and weaker management. Across the board, product governance is the most acute risk, with business ethics, labour relations and data privacy also contributing. Providing reasonable access to healthcare as a basic service is also a growing issue, with greater concerns surrounding the social implications of for-profit healthcare companies.
According to Sustainalytics, CVS Group’s management of ESG risks is average overall.
Issues of note include poor disclosures, resulting in substandard accountability to investors and the public. Whilst the CMA investigation remains underway we see business ethics as a key ESG risk to be mindful of. Given the group’s reliance on highly skilled veterinary practitioners, labour relations and with it talent retention and attraction are also an area to watch.
CVS Group key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. 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.
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