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CVS sees game of two halves

The vet group has taken remedial action to get its business back on track
March 29, 2019

CVS (CVS) has revealed a much stronger start to second-half trading than previously expected. Employment costs may have risen 10 per cent during the opening six months of the year, prompting a 5 per cent fall in adjusted pre-tax profits to £17.4m. But since the period end, the group has seen an improvement in veterinary and nurse locum rates which, combined with good top-line acceleration, allowed analysts at Peel Hunt to upgrade full-year pre-tax profit expectations to £38.6m from £37.6m – equating to EPS of 46.5p – compared to £37.3m and 47.8p in FY2018.

IC TIP: Hold at 605p

Like-for-like sales grew 4 per cent in the reported period, while gross margins could soon start moving in the right direction as staff costs fall. Meanwhile, the group plans to reign in its acquisitive growth strategy, as valuation multiples across the sector “feel too high”. It will also consider “appropriate” price increases across the practices division and attempt to renegotiate supply contracts where possible.

The board has not signed any acquisitions since the half-year-end, but net debt still rose by more than two-thirds year on year to £117m – equivalent to a leverage ratio of 2.4 times adjusted cash profits. Having refinanced its banking facilities last September, bosses say this is still comfortably within the covenant maximum of 3.25.

CVS GROUP (CVSG)   
ORD PRICE:605pMARKET VALUE:£ 427m
TOUCH:605-606p12-MONTH HIGH:1,191pLOW: 362p
DIVIDEND YIELD:0.8%PE RATIO:64
NET ASSET VALUE:220p*NET DEBT:75%
Half-year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20171586.27.8nil
20181951.61.2nil
% change+24-74-85-
Ex-div:na   
Payment:na   
*Includes intangible assets of £251m or 356p a share