CVS Group expects to report full year revenue growth of 5.9% to £712.8mn, driven by like-for-like (LFL) sales growth of 2.1% and acquisitions.
Underlying cash profit (EBITDA) is set to grow 5.1% to £141.5mn in line with market expectations.
The group spent £45.6mn acquiring 14 sites in Australia, while net bank debt increased by £68.2mn to £199.6mn.
The group has completed £11.7mn of the ongoing £50mn share buyback programme, with the remainder to be completed by November 2026.
Looking ahead, CVS believes there is a strong pipeline of acquisition opportunities in Australia. In the UK, weak consumer confidence is impacting visitor numbers to its vet practices.
The shares fell 5.7% in early trading.
Our view
CVS Group is set to deliver modest full-year profit growth, broadly in line with analyst forecasts. But with sentiment improving ahead of the update, the market may have been hoping for an upgrade. A cautious tone around the UK outlook added to the disappointment, sending the shares lower on the day.
We’re supportive of new investments in the group’s UK clinics and customer proposition but it could be a while before CVS sees the financial benefits.
The final result of the Competition and Markets Authority probe into the veterinary industry didn’t contain any overly punitive measures. Consolidation in the UK has been muted during the investigation, and its conclusion could reopen the door for CVS’s buy-and-build strategy at home, in what is likely to be a buyer’s market.
Management is also hopeful that its vets will be less hesitant about offering clients more advanced treatment options, which could be a further positive for revenue growth.
The group’s 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. Following a pandemic-driven boom, the pet population has stabilised, but as these animals age, they’re likely to require more veterinary care.
Acquisitions remain key, with around £50mn set aside annually for deals in Australia, where similarities with the UK market should allow smooth integration into the group. However, one notable difference is that practices down under tend to be larger, which is beneficial for margins.
At the last count, net debt was well within target levels, which combined with healthy cash flows has given management the confidence to plough ahead with £50mn worth of share buybacks. There’s also a small dividend on offer, although no payouts are guaranteed.
We see CVS as a high-quality business in an attractive market. The shift in focus to Australia looks like a good move, and with the overhang of regulatory intervention now effectively removed, we think there’s scope for sentiment to recover. However, macroeconomic uncertainty means disappointments can't be ruled out. Investors will also be hoping that a credible candidate for the CEO post will be found sooner rather than later.
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 strong.
Issues of note include poor disclosures, resulting in substandard accountability to investors and the public. The CMA investigation highlighted business ethics as a key ESG risk to monitor with reform of the Veterinary Services Act the next important change to keep an eye on. Given the group’s reliance on highly skilled veterinary practitioners, labour relations and with it talent retention and attraction are also areas 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.
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 LSEG. 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.
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