CVS Group shares rise as full-year guidance maintained, CMA review looms

CVS Group shares ticked higher on Thursday after the veterinary services group released rising revenue for the full year ended 31st December and said they expect to deliver full-year results in line with expectations.

The company posted strong revenue growth during the period, with total group revenue increasing 11.4% to £329.9 million compared to £296.3 million in the first half of 2023. On a like-for-like basis, CVS’ sales rose 6.0%, within the 4-8% target range outlined at the company’s Capital Markets Day in November 2022.

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A key driver of CVS’ growth continues to be membership in its Healthy Pet Club preventative care program, which reached 500,000 members as of 31 December 2023, up 4.0% from 489,000 members as of 30th June 2023.

The company’s adjusted EBITDA margin held steady at approximately 19%, as a slight improvement in gross margin was offset by increased utilities and other costs, as well as continued investment in support functions.

“CVS continues to be buoyed by an explosion in pet ownership in the UK. The vet-care specialist has seen another round of double digit revenue growth in the first half, and robust like-for-like growth. The group’s mindful of the tough economic backdrop, but has reaffirmed it’s on track to hit full year expectations,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“One of CVS Group’s main strengths is that spending on our pets is an area that we won’t cut back on unless absolutely necessary. That doesn’t make the group immune to a tightening of purse strings, but it does make it more resilient than the average business.”

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CVS invested £17.2 million in practice refurbishments, relocations, new equipment and technology during the first half, in line with its target of £30-50 million in capital expenditures per year.

The company remained active on the acquisition front, completing 4 additional acquisitions of small animal veterinary practices in Australia, bringing the total to 13 acquisitions and 15 sites in the first half of 2024. The aggregate initial consideration for these deals was A$103.8 million (£54.6 million).

CVS Group shares were 1.4% higher on Thursday, but the stock still remains well below 52-week highs after the UK’s CMA announced a review into the veterinary market’s practises.

“The cloud of the Competition and Markets Authority’s investigation into the veterinary sector is still lingering. Outcomes are due early this year, and this will be the main driver of sentiment in the short term. Issues surrounding branding when CVS acquires a local practice, as well as pricing transparency are two of the main issues at play. Despite the added pressure this brings, the shares have arguably been oversold in response to the investigation,” Lund-Yates said.

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