- Margins maintained
- Slight share price recovery
Veterinary group CVS (CVSG) has purchased four additional practices in Australia since its AGM in late November, bringing its total number of acquisitions in the country to 13. Despite continued cost pressures, especially where staff wages are concerned, the company appears committed to expansion.
In the six months to the end of December, it also took on four new practices in the UK – which explains why headline sales were up more than 11 per cent on the same period last year. However, Liberum analysts noted that like-for-like revenue growth (which adjusts for sales from newly-opened sites) was “a touch light” at 6 per cent.
This suggests the group relies on acquisitions to keep earnings ticking up. But this shouldn’t be an issue given management reports that it has “a strong pipeline” of new opportunities to draw on. Leverage at the end of last year was 1.15 times, comfortably below the company’s 2 times target, if somewhat higher than the 0.73 figure recorded at the end of June.
There has been no update from the Competition and Markets Authority (CMA) regarding its ongoing investigation into veterinary pricing in the UK, although initial findings could be released any day. The very announcement of the probe caused CVS’s shares to nosedive in September and they remain down 14 per cent in the past six months.
The group now trades on a price/earnings multiple of 17 for the financial year ending this July, which we think is justified given the prospect of continued growth. CVS also maintained an adjusted Ebitda margin of 19 per cent in the first half, proving it’s consistent even when macro conditions and the regulatory climate aren’t.
Last IC view: Buy, 1,554p, 22 September 2023
