Brewin Dolphin CVS Group PLC 08/12/11 11:37
Upgrades
Buy Conviction Buy
134.00 134.00
2
GBP
http://www.brokerforecasts.com/companies/CVSG/CVS+Group+PLC

hi - i had taken a look after the interims and just revisited my views.

in short (this be interesting......!) i think the company is at a critical tipping point and for me i would not invest until i was sure that tipping point had been met and the company was on its way with positive momentum.

the factors i think against CVSG are the relatively high debt, which not were companies should be post credit crisis and as potentially start to see higher interest rates (even if at re-negotiation in 2/3 years time). the high debt is also for a company that has high operational gearing - fixed costs of staff and buildings if volumes reduce. if also limits their firepower for expansion unless there is a dilutive rights issue as they only have some much cash flow and spare facility and thus a 'transformational' deal is off the cards without a right issue.


additionally it must be suffering in some context re the general tighness of consumer expenditure. yes pet insurance etc... will make it more likely maybe for vet visits but ultimately will people cut back on pets for kids etc... given costs / look for cheapr pets to maintain and worst case scenario limit the amount of preventitive visits to vet when money is tight. now of course they can have acquistion led growth but this will be modest (i..e if not couple with LFL growth) and also acquisitions means debt will stay at highish levels.....


so i think that the price will get closer to 100p as a buying opportunity and also that the chart indicates 120p might eb resistance so it needs to clear above that to really motor and that is when i;d be particularly interested.

on the upside the business could get serious momentum - CASH flow is very strong - so if can repeat LFL sales of + 2%, find some cheap acquisitions then suddenly the level of debt reduces and the business starts to get rated as a grwth stock with good record that could easily see the price up to 200p again. but for me at the momenet there are some downside risks and thus i'd like more confirmatin before committing.

they remain though on my watchlist as a bid is also a very realisitic scneario. it mgiht make sense for PE to purchase number 1 and number 2 in sector to create the dominate business and get real momentum and buying power benefits. i think htis would require an external 3rd party as does not seem to be on radar of CVSG to instigate.


one question ---- in recent RNS they say they are the largest in a fragmented market but then at start of interims they say they are ...' one of the leading players...' i was just curious as why not 'THE leading player' as companies are frequently looking to self promote.



All IMHO, DYOR and BoL
CVSG is not in my portfolio

Trading update
http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=10928917

Very pleased. H2 LFL +3%.

Sales in H2 look being more like 52m - 53m rather than my previous guess of 51.3m.

V happy to have been able to add more to my holding at 114p this morning.

Hope the rest of my trading week goes like this.

In my humble opinion, Do your own research etc. Good luck all, and happy investing!

So, time to stick your necks out - guess what you think the results will be...

My back of a fag packet guesses:
* H2 Like-For-Like Sales of -1%
* Full Year Like-For-Like Sales of -1.5%
* LFL sales drop in 2nd half offset by full year of prior year acquisitions and minor current year acquisitions resulting in half year sales of 51.3m v 44.0m in same half last year.
* Full year sales of 101.8m
* Full year EPS of 5p BUT crucially, adding back amortisation of 5.2m will give adjusted EPS of 13.9p (nb this is different from CVSG adjusted EPS as they would apply a notional tax charge to the amortisation added back, which I don't do as I believe it to be nonsense)

Given how stable earnings and margins are, and assuming a 10% cost of capital, and using my 13.9p adj earnings as estimate of potential cashfow generation, I come up with a share value of North of 130p.

I'll be happy with EPS of over 5p but very shocked if the share price manages to rise to where I think it should be as everyone seems to miss the amortisation trick needed to uncover the true value. I expect I'll need to carry on holding for a while longer yet before the share price starts reflecting the true value....

All, of course, in my ill-informed under-educated and very humble opinion. Do your own research and make your own calcs - would love to see what you come up with.