Half year revenue rose 11.4% to £273.7m, reflecting a 9.6% rise in like-for-like sales. There was organic growth across all business areas and underlying cash profits (EBITDA) rose 15.5% to £52.0m.
The group said positive trends have continued in the first two months of the second half, and full year results are expected to be in-line with management's expectations.
The shares fell 1% following the announcement.
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Our View
There are now 24m cats and dogs in the UK, and by some estimates, 3.2m households bought a pet since the start of lockdown. As the saying goes, 'pets are for life'. Or, rather, 'a life of vet trips'.
That makes it a good time to be one of the UK's leading vet networks, like CVS Group. The group has over 500 veterinary practices across the UK, Ireland and the Netherlands, plus a handful of diagnostic laboratories and pet crematoria. They're supported by the rapidly growing Animed online veterinary pharmacy. As we shift to a more digital world there's reason to think this division will only build scale and become more profitable. Offering services across the broad spectrum of pet needs helps CVS capture as much revenue from owners as possible.
Since listing in 2008, group earnings per share have grown steadily, fuelled by the acquisition of small independent vet practices. Keeping acquisitions small limits the risk of each individual deal, and new practices get maximum benefit from the wider group's buying power.
Acquisitions remain key, especially in the more fragmented Irish and Dutch markets. The group's also open to entering new geographies; and with less competition in Europe, deals on the continent are cheaper. Net debt, as a proportion of cash profits, is well under one, giving CVS the power to pounce on any larger deals as they emerge.
The group's also paying attention to organic profit growth. Better integration allows costs to be streamlined. Effectively cross-selling services like Animed and the crematoria could boost sales at minimal cost. The 461,000-member Healthy Pet Club, which provides services and discounts to subscribers, should help on that front.
For all CVS's positives, it has one major weakness. The company relies on a ready supply of highly skilled professionals, and at times the supply has been anything but ready. The group's struggled to recruit staff in the past, and subsequent wage increases hit profit growth and the share price hard. While CVS has taken steps to mitigate that risk, it remains an industry wide challenge as veterinary demand increases. The costs associated with attracting enough staff to keep up with the pace of expansion, and keeping existing members happy, is holding margins back.
Conditions are about as favourable as they'll ever be right now, so CVS Group is making hay while the sun shines. We admire CVS Group's position and growth opportunities, but investors are paying for that strength, although we note the valuation is less demanding than it has been.
CVS key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half year results
The group provided an update regarding the acquisition of Quality Pet Care Ltd, stating: ''Whilst we are naturally disappointed with the recent CMA decision following their investigation into our August 2021 acquisition of Quality Pet Care Ltd, (trading as 'The Vet'), we have offered undertakings to dispose of Quality Pet Care Ltd and all eight of its sites in order to resolve any potential competition concerns.''
In the Veterinary Practices, revenue rose 11.5% to £243.3m, reflecting strong organic growth. Underlying cash profits (EBITDA) rose from £45.8m to £52.1m.
A reduction in one-off Covid testing means revenue fell 4.3% to £13.3m in Laboratories. Underlying EBITDA rose 3.9% to £4.0m. Underlying EBITDA rose from £1.4m to £1.7m in the Crematoria business.
Animed Direct, the group's Online retail business saw revenue increase from £19.7m to £22.7m, reflecting improved product lines. Underling EBITDA also rose from £1.4m to £1.7m.
CVS Group's net debt is ''comfortably'' below 1 times EBITDA, and the group generated free cash flow of £18.9m, down from £36.1m reflecting unfavourable working capital movements.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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