CVS proves pets are priority in a downturn

There are only a few sectors of the UK economy that could claim to be thriving at the moment – and veterinary medicine appears to be one of them. Vet services group CVS (CVSG) reported 7.3 per cent year-on-year revenue growth in its practices in the six months to the end of December. 

Veterinary surgeries, which account for 86 per cent of group revenue, had to contend with an admittedly slimmer margin at 21 per cent (down from 21.4 per cent in 2021). The company attributed this to increased investment in staff, as well as the obvious inflationary pressures. 

However, volumes look likely to remain stable thanks to the increase in pet ownership seen during the Covid-19 lockdown period. “We expect to see the full benefit of this increased population over the next five to 10 years as these animals reach maturity and may require more frequent and complex veterinary interventions,” the company said in its results. 

CVS is clearly confident in its ability to grow against a gloomy economic backdrop. In the first half of its 2023 financial year, the company completed five acquisitions of eight practice sites for a total consideration of £24.4mn. Focus on growth initiatives also led to an almost-doubling of investment capex to £19.9mn, versus £10.6mn in the previous year.

The group’s two other divisions, labs and crematoria, also grew their revenue by 7.2 per cent and 10 per cent respectively, although margins fell for crematoria as fuel costs went up.

Ultimately, the board remains confident in the company’s ability to meet expectations for the full financial year. Given the long-term prospects linked to pet demographics, we don't consider a forward rating of 21 times forecast earnings overly optimistic. Buy.

Last IC View: Buy, 1,616p, 22 September 2022