CVS Group delivered first half sales of £341.8mn, with like-for-like comparisons down 1.1% impacted by softer market conditions in the UK.
Underlying cash profit (EBITDA) grew by 4.5% to £67.4mn helped by growth from acquisitions in Australia. Free cash flow fell from £33.7mn to £31.4mn with increased tax and interest payments more than offsetting improved operating cash flows.
Since the year end net debt increased £15.3mn to £180.1mn as the business continues its expansion drive in Australia, with £23.3mn spent on acquisitions so far in 2025.
The group expects the core veterinary division to return to growth in the second half and is comfortable with consensus expectations for this year, which forecast revenue of £694.5mn and cash profit of £137.5mn.
The shares were flat in early trading.
Our view
CVS Group’s first half challenges have been well trailed in recent weeks so little surprise that the interim results didn’t provoke much of a reaction.
The UK’s Competition and Market Authority (CMA)’s investigation into the industry’s competitive practices continues to drive uncertainty. But expectations of an improved second half and a pleasing performance in the increasingly important Australian division means the company’s on track to drive modest profit growth over the full year.
A potential crackdown on cross-selling of services between partner practices and a focus on pricing are unwelcome but not insurmountable. A forced sale of some of some operations also can’t be ruled out. But we remain hopeful that changes will need to be relatively minor, like making group branding more obvious (when CVS buys smaller clinics it currently tends to keep the original branding).
CVS is a one-stop shop for pet needs - the biggest business is its hundreds of vet clinics. But it also operates cremation services and an online pharmacy - Animed. There's a product or service available for pet owners at every stage of their pet's life.
The veterinary sector certainly has its attractions. People will spend on their furry companions, especially when it comes to health, no matter what's going on in the economy. The pandemic has seen pet ownership increase massively too.
And not only this, but the way we treat our animals is playing into the hands of vets. So-called humanisation of animals means we're more willing to part with cash on check-ups and treatments for every sniffle and tummy upset. Half a million of us are signed up to the Healthy Pet Club subscription service, which makes custom even stickier.
Acquisitions remain key, with the focus now firmly on Australia, where similarities with the UK market should allow smooth integration into the group. The acquisition spree has driven up debt levels. There’s still headroom for further deals, but to pick up the pace, CVS may need to consider financing options. So we’re not expecting huge growth in the dividend. No shareholder payouts can be guaranteed.
Despite a strong recovery so far this year, the current valuation is now well below the long-term average. We feel this represents an opportunity for investors to invest in a high-quality business with growth potential. However, the potential for ups and downs remains heightened until the CMA gives a steer on its recommendations. That’s not expected until May 2025 at the earliest, with a final report due later in the year.
Environmental, social and governance (ESG) risk
The healthcare industry is largely medium-risk in terms of ESG, with companies in Europe and the US trending toward the lower end of the spectrum due to more stringent regulations. Risk also varies by subindustry, with Pharmaceuticals categorised as medium/high risk due to higher exposure and weaker management. Across the board, product governance is the most acute risk, with business ethics, labour relations and data privacy also contributing. Providing reasonable access to healthcare as a basic service is also a growing issue, with greater concerns surrounding the social implications of for-profit healthcare companies.
According to Sustainalytics CVS Group’s management of ESG risks is average overall.
Issues of note include poor disclosures, resulting in substandard accountability to investors and the public. Whilst the CMA investigation remains underway we see business ethics as a key ESG risk to be mindful of. Given the group’s reliance on highly skilled veterinary practitioners, labour relations and with it talent retention and attraction are also an area to watch.
CVS Group key facts
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