Veterinary practice group CVS (CVSG) continues to defy those who doubt the sustainability of its growth. Over the last five years its shares have risen eightfold and, despite a continually demanding price-earnings ratio, another two-thirds have been added to the group’s value in the last 12 months.
Full-year results from the Suffolk-headquartered company have, once again, proved why the shares are so coveted. Like-for-like revenue growth of 6.3 per cent was aided by £65m of sales from the 129 practices bought in the 2016 and 2017 financial years. Meanwhile, adjusted cash profit rose by 28 per cent to £42m, helping spark operating cash inflows of £37m, £3.6m up on the prior year.
Aside from the excellent headline figures, CVS added another 53,000 animals to its Healthy Pet Club scheme, taking the total number of members to 306,000. As a result, monthly subscription revenue rose 35 per cent to £33m and now makes up over 13 per cent of monthly practice revenues. These reliable, high-margin revenue helped send gross margins up slightly to 79.9 per cent.
Acquisitions have long been core to CVS’s growth and the spending spree has continued in the current financial year. Just three months in, and the group has already spent £13.5m on 10 new practices which are expected to add £1m to adjusted cash profits in the year to June 2018. Thus, broker N+1 Singer has upgraded full-year forecasts and now expects pre-tax profit of £39m, giving adjusted EPS of 48p (from £34m and 42p in FY2016).
But these forecasts exclude the potential for more acquisitions which are inevitable in the highly fragmented UK veterinary marketplace. The group is also looking to build on its initial expansion into the European market – where competition for acquisitions is lower than in the UK – after buying nine veterinary practices in the Netherlands in the 2017 financial year. CVS retains significant financial firepower for acquisitive growth given its £153m debt facility and strong free cash flow, which is expected to rise to near £40m in the 2018 financial year.
| CVS GROUP (CVSG) | ||||
| ORD PRICE: | 1,463p | MARKET VALUE: | £935m | |
| TOUCH: | 1,461-1,465p | 12-MONTH HIGH: | 1,482p | LOW: 840p |
| DIVIDEND YIELD: | 0.3% | PE RATIO: | 79 | |
| NET ASSET VALUE: | 138p* | NET DEBT: | 114% | |
| Year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 120 | 5.5 | 7.1 | 2.0 |
| 2014 | 143 | 6.3 | 8.3 | 2.5 |
| 2015 | 167 | 8.5 | 11.6 | 3.0 |
| 2016 | 218 | 9.1 | 11.6 | 3.5 |
| 2017 | 272 | 14.5 | 18.5 | 4.5 |
| % change | +25 | +59 | +59 | +29 |
| Ex-div: | 23 Nov | |||
| Payment: | 8 Dec | |||
| *Includes intangible assets of £167m, or 262p a share | ||||
