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

• Acquisition Benefits: On 6 May 2022, CVSG announced that it acquired the entire share capital of Anton Vets Ltd, for consideration of around £6 million. It was funded through the Group's existing bank facilities.
• Increase in Clinical Resource: The Company 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.

Key Risks 

• Federal Reserve Rate Hike: The Federal Reserve has announced its biggest interest rate hike since 1994, an increase of around 75 basis points, while also pointing to further steady rises this year.
• Bank of England Meeting: The Bank of England meeting scheduled for 16 June 2022 may result in a fifth interest rate hike. Thus, it may adversely impact UK equities.
• Weak UK GDP Numbers: According to the Office for National Statistics, the UK GDP grew only 0.2% for the three months through April 2022 after 0.8% in the previous three-month period.

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.

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% year-on-year 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 16 June 2022 at 10:05 AM GMT+1, CVSG’s shares were trading at GBX 1,529.00, down by around 3.47% against the previous day closing price. Stock 52-week High and Low were GBX 2,835.00 and GBX 1,512.00, respectively.

On a daily chart, the stock price is hovering below the lower Bollinger band, indicating an upside potential in the stock price. Also, the 14-days RSI of ~32.74 approaches oversold territory.

Valuation Methodology: Price/Earnings Approach (FY23E) (Illustrative)

Business Outlook

CVSG has 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. Moreover, the Company remained well positioned for future growth with increased investment in facilities, equipment, and a pipeline of further acquisition opportunities. Overall, the Company remained optimistic of producing FY22 results in line with the 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 market price of GBX 1,529.00 (as of 16 June 2022 at 10:05 AM GMT+1), with lower-double digit upside potential based on 20.96x Price/NTM Earnings (approx.) on FY23E 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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