CVS Group PLC

CVS Group PLC (CVSG) is one of the largest integrated veterinary service providers in the UK, which operates four laboratories performing diagnostics services for the industry and seven pet crematoria, as well as seven referral practices providing specialist treatment. The operations are differentiated in four core operating segments, namely Animed Direct, Crematoria, Laboratories, and Veterinary practices.

Financial Highlights (for the year ended 30 June 2019, £million)

(Source: Preliminary Results, Company Fillings, LSE)

For the financial year 2019, the company’s reported revenue increased by 24.2 per cent to £406.5 millionas compared with the financial year 2018 of £327.3 million, due to a number of acquisitions in the H1 FY2019 coupled with strong like-for-like sales increase of 5.2 cent for the company as a whole and 4.3 per cent in veterinary Practices. Healthy Pet club members increased by 10.8 per cent to 401,000 in FY2019 against the previous year data. Adjusted EBITDA rose by 14.5 per cent to £54.5 million against the £47.6 million in FY18. Adjusted earnings per share surged by 10.1 per cent to 46.7 pence as compared with the corresponding period of the last year. The reported profit before income tax reduced by 17 per cent to £11.7 millionas compared to £14.1 million in FY2018, driven by the surge in amortisation. Basic earnings per share declined by 27.5 per cent to 11.6 pence against the 16 pence in FY18. In FY19, cash generated from operations increased by 11.6 per cent to £52.1 million against the previous year data. The board proposed the dividend per share of 5.5 pence, an increase of 10 per cent against 5 pence in FY18. On 30^th June 2019, the net debt was £102.0 million (2018: £69.0 million), and leverage stood at 2.08x (2018: 1.44x).

Share Price Performance

Daily Chart as at October-14-19, before the market closed (Source: Thomson Reuters)

On 14th October 2019, CVS Group PLC shares were trading at GBX 982.50 at the time of writing before the market close (at 1:38 PM GMT), down by 1.355% against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,062/GBX 362.26. The company’s stock beta stood at 0.76, reflecting the lower movement of the stock as compared to the benchmark index.

Valuation Methodology


Key Risks
The group currently faces Brexit uncertainty and economic slowdown which could result in a decline in customer confidence. The increased acquisition and corporate consolidation of the independent veterinary practices result in a loss of customers for the company. The company's operations are subject to several regulations and laws and changes in these could have a material unfavourable effect on the company’s operations. Pet ownership levels in the United Kingdom have stayed relatively static in current years, but the company may see a future decrease considering changing lifestyles or in the event of an economic downturn.

Conclusion
Although the top-line performance has improved, the bottom-line performance has declined for the period. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. The company’s P/E, P/CF, and EV/EBITDA multiple are significantly higher as compared to the industry multiple, reflecting overstretched valuations. Moreover, the company is trading near 52-week High, raising doubts at its upside potential at current prices.

In the short-term, the company expects to face challenges from macroeconomic and geopolitical uncertainties, not least from the continuing global trade tensions, which has impacted global growth.

Based on the above rationale and support from valuation done using the above method, we have given a “Sell” recommendation at the closing price of GBX 996 (as on 11th October 2019) based on 17x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*The “Sell” recommendation is valid for the current price as covered in the report (as on 14^th October 2019).
*All forecasted figures have been taken from Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.