CVS Group PLC (LON: CVSG)

CVS Group PLC is an FTSE AIM UK 50 index listed Company known as one of the largest integrated veterinary services providers in the UK. Moreover, it operates through four main business areas: veterinary practices, diagnostic laboratories, pet crematoria and e-commerce division.

Growth Prospects

• High-Quality Clinical Care: CVSG had increased its focus towards high-quality clinical care supported by investment with 19 practice refurbishments and relocations completed in H1 FY22 and incurred a capital investment of £10.6 million.
• Increase in Clinical Resource: The Company had hired 116 new permanent veterinary surgeon roles during H1 FY22. Moreover, CVSG had shown a 9% increase in vets employed during 2021 when compared with 2020.
• Affordable HealthCare Scheme: The Company has shown a significant increase in Healthy Pet Club ("HPC") from 461,000 as of 31 December 2021 to 466,000 members as of 28 February 2022.

Key Risks 

• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% in February 2022, which may cause a further interest rate hike.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

Key Fundamental and Shareholders Statistics of CVS Group PLC. 

BlackRock Investment Management (UK) Ltd. is the most significant shareholder as it holds nearly 5.09 million shares as of 31 December 2021.    

Financial Highlights (for the six months ended 31 December 2021, as of 24 March 2022)

(Source: Company Filings)

• Top-Line Business: The Company had posted a solid increase of around 11.4% in total revenue to £273.7 million during H1 FY22.
• Profitability: On the profitability front, the Company has witnessed a robust jump of around 54.4% in basic earnings per share from 16.0 pence in H1 FY21 to 24.7 pence during H1 FY22.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 31 March 2022 at 08:28 AM GMT+1, CVSG’s shares were trading at GBX 1,776.00, same as the previous day closing price. Stock’s 52-week High and Low were GBX 2,835.00 and GBX 1,512.00, respectively.

On a daily chart, the stock price is sustained above the 20-days exponential moving average of GBX 1,728.69. Hence, there could be an uptick in the stock price in the near term. Also, the MACD line has given a bullish crossover against the signal line.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative) 

Business Outlook

CVSG had replicated the positive trading momentum of H1 FY22 into the first two months of H2 FY22 by providing high-quality care to the clients and their animals. Moreover, the Company remained well-positioned for future growth with increased investment in facilities, equipment, and a pipeline of further acquisition opportunities. Meanwhile, CVSG has witnessed a stable vet vacancy rate, averaging 10.3% for the first eight months of FY22 ended 28 February 2022. In a nutshell, CVSG remained confident of producing FY22 results in line with management expectations.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the solid fundamentals, decent operational progress, strong financial ratios, increased investments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on CVS Group PLC at the current price of GBX 1,776.00 (as of 31 March 2022 at 08:28 AM GMT+1), with lower-double digit upside potential based on 25.96x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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