CVS Group PLC (LON: CVSG)

CVS Group PLC is an FTSE AIM UK 50 index listed entity operating as an integrated veterinary services provider in the UK.

Rationale for Valuation – Speculative Buy at GBX 1,594.00

• Acquisition: 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.
• Growth Catalysts: 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.
• 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.
• Technical Indicator: From a technical standpoint, the current stock price is hovering around the lower Bollinger Band, while the 14-day RSI (35.86) is also in the oversold position.
• Undervalued Multiples: On a forward 12-month basis – key valuation multiples (EV/Sales, Price/Cash Flow, and Price/Book) are undervalued against the average of Health Care sector.

Key Risks

• Macroeconomic Uncertainties: The interest rate worries, the US dollar hitting two-decade peaks, persistent inflation, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.
• Business Risk: The failure of partner relationships could adversely impact the business in the near term.

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.
• Operational Growth: The adjusted EBITDA margin improved to 18.6% (28 February 2021: 18.1%). Moreover, Healthy Pet Club membership increased to 466,000 members.
• Profitability: On the profitability front, the Company 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.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23) (Illustrative)

*Peers: Alliance Pharma PLC, Telecom Plus PLC, and Animalcare Group PLC.

*All selected peers are LSE-listed Companies from the Health Care sector.  

Conclusion 

In a nutshell, CVSG remained confident of producing FY23 results in line with management expectations.

Based on 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 1,594.00 (as of 11 May 2022, at 9:20 AM GMT+1), with a lower-double digit upside potential based on 21.23x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Nevertheless, 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.

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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