CVS Group, a leading provider of veterinary services, has reported a 11.4% increase in half-year revenue, reaching £329.9 million. However, the like-for-like (LFL) growth of 6.0% has experienced a slowdown compared to the previous year.

The company attributes this to the impact of a challenging economic environment and increasing cost of living pressures. Despite the economic headwinds, CVS Group’s growth remains within its target range.

Operating profit declined by 9.2% due to higher costs, while free cash flow reached £23.8 million. The net debt to cash profits (EBITDA) ratio rose to 1.15 times from 0.73, partly influenced by acquisitions. CVS Group expanded its presence by acquiring fifteen practice sites in Australia during the reporting period, with additional deals in the pipeline.

Acknowledging the challenging economic climate, CVS Group expressed concern about potential impacts on demand and extended support for the Competition and Markets Authority’s investigation into the veterinary sector. Notably, the company refrained from announcing an interim dividend, and the final dividend amount will be contingent on full-year results. Following the announcement, the Group’s shares experienced a 4.3% decline.

Hargreaves Lansdown’s Analysis

Hargreaves Lansdown, a British financial services company, provided an analysis of CVS Group’s performance, highlighting the resilience of the veterinary business, particularly during economic uncertainties. The company’s diversified offerings, including vet clinics, cremation services, and an online pharmacy, contribute to its robust business model.

The veterinary industry remains attractive, driven by pet owners’ willingness to invest in their pets’ health, a trend amplified by the surge in pet ownership during the pandemic. CVS Group’s Healthy Pet Club subscription service, with half a million subscribers, enhances customer loyalty. The company’s strategic focus on acquisitions, especially in fragmented markets like Ireland and the Netherlands, reflects its growth-oriented approach. CVS Group’s recent entry into the Australian market is viewed as having significant potential, according to  Hargreaves Lansdown.

The company’s solid financial position, measured by debt levels, positions it well for potential larger deals. CVS Group’s disciplined approach to acquisitions aims to create shareholder value. While the veterinary industry faces challenges such as a shortage of skilled professionals, CVS Group’s operating model helps manage costs and ensures the continuous flow of free cash, supporting dividend payments.

Challenges and Regulatory Scrutiny

Two significant challenges for CVS Group include the ongoing vet shortage across the industry and the Competition and Market Authority’s (CMA) investigation into the veterinary sector. The CMA is scrutinising cross-selling practices and pricing within partner practices. The outcome, expected early in the year, will play a crucial role in shaping short-term sentiment around CVS Group.

In conclusion, CVS Group, despite economic challenges and regulatory scrutiny, remains a high-quality business with growth potential. While risks exist, the recent valuation dip is viewed by analysts as potentially overstated, emphasizing the company’s resilience and growth prospects. Investors are advised to closely monitor the CMA’s findings for insights into CVS Group’s short-term trajectory.