CVS's (CVSG) half-year figures were accompanied by news that the veterinary group had initiated a discounted placing of 6.4m shares at 1,050p apiece. The money raised will be used to pay down the group's growing debt pile, and fund £40m in targeted acquisitions over the next six months. The placing shares represent a maximum of 9.88 per cent of existing voting rights and will be initially dilutive for earnings.
Analysts at Peel Hunt expect pre-tax profit of £41.3m in the year to June 2018, giving EPS of 53.8p, compared with £35m and 47.4p in FY2017.
IC View- FWIW
CVS has been building revenues and cash flows on the back of an ambitious acquisition strategy as it seeks to take advantage of a still fragmented marketplace. But the group's rate of expansion increases execution risk, and the high level of intangible assets won't sit well with some investors. Some may even question why management plumped for a dilutive capital-raise over senior debt. However, the investment rationale has not changed, with the animal healthcare market expected to grow at around 5 per cent a year for the next decade, aided by an increased take-up of pet insurance. The shares, trading on 21 times forward earnings, still present a decent value buying opportunity.
I sold. Morningstar http://www.morningstar.com/stocks/xlon/cvsg/quote.html shows mediocre ROIC of about 8%. Return on equity is much better, but only because of the debt. Miserable net margin consistently <5%, 2010 to 2017. I see no evidence of economies of scale from the growth. I got about 2% less than the quoted selling price.
V -- keep an eye on the debt - look what happened to Dignity, it's debt to EBITDA ratio has jumped to 5.7X. For a business basing it's growth on acquisition, high debnt must surely be self limiting at some point, no?
Maybe Vets are better than Funeral parlours in providing an upsell with things like Animed etc, but there are some similarities, not least the common board members here.
various reasons for decline /kids prefer iphones/young people renting where dog ownership is forbid/couples both tied up in full time work with no time for a pet etc same decline for dogs/cats/equine even fish .not good news for the business we're in
relieved by yesterdays trading statement but 24 hours later i'm unnerved by the problems at dignity .dignity has had to acknowledge its now in a competitive market and margins have been slashed to compete and whilst we're some way off that in our chosen market at some stage this will be our fate .still a holder here but lightening my position
business appears to be ok after a bit of a wobble .healthy like for like growth 5.6% / 3% exclude animed /improved trading up to xmas . nevertheless I've lightened my holding having let it run on a bit but happy to hold on to the rest .
""""Sadly I think we have to accept that this growth share may slip back to a more realistic ground, say around p/e 20 where a growing yield looks better."""
iolo -- I think you've got what you wanted -- it's approximately P/E of 19 at a share price of 900.
Not sure there is any great significance about a P/E of 19 though.
What would concern me most is how CVSG is going to make each of the surgeries more profitable than they were before and to provide a return that is above the weighted cost of capital.
What really changes when one of these surgeries is bought? -- Do they fire some of the vets to cut costs, get rid of the admin staff? -- do they have more sales?
The growth bit is relatively easy -- you keep buying the Earnings Per Share and some investors think this is an economic progress -- It is, if it can show an improved sales growth at a better margin -- is it going to be doing that?
Oh dear. What a shocker. The high p/e has always been a concern but I ignored it. Often reasonable where growth and profits justify it but time to review.
The Chairman's comments highlight a lots of weaknesses which appear to undermine and no longer support the extremely high p/e. These were picked up in the StockMarketWire but I chose to ignore them.
The Board's plans still seem realistic and perhaps it is people like me who have read too much into the delivery so far and chased the price up unreasonably. The scale of the trades indicate nearly all were from fellow small investors! Seeing all my profits disappearing over a few days indicates I have to relearn some lessons e.g. more use of a stop loss and not get blinded by rising share prices.
Sadly I think we have to accept that this growth share may slip back to a more realistic ground, say around p/e 20 where a growing yield looks better. I am surprised that the IC Tip did not pick on it - perhaps I have missed other key factors? The ROCE is still very positive and I particulalrly like that. The results show the model is working and no reason why it should not continue for the mid/long term.
The comparison with Dignity is interesting although, to me, it is further along with the business model and I think debt is a much greater concern.
I still like CVSG and will buy back IF the figures look more realistic. Good job I bought the Xmas presents before the drop. Perhaps someone will buy me 'The Ladybird Book of share buying for adults'?
dignity ceo is a non exec at cvs and the business models are similar.dignity's problem at the moment is the lack of births 1939-1945 these being the people who would now be dying.... This is a short term problem since the birth rate blossomed after the war.
the travails over at Dignity (lots of similarities with CVS business model ) must be having some effect .the market senses the model at Dignity has run its course ,hence the markdown .CVS has plenty of expansion ahead but doubt has crept into our heads .
Veterinary group CVS (CVSG) continues to fall this morning after yesterdays meltdown. The AGM statement - which highlighted slower like-for-like sales growth and a difficulty in recruitment - did not go down well with shareholders. The shares closed down 22 per cent, wiping off all the gains made in the last year. We think this is an enormous overreaction. CVS continues to acquire at pace, has the financial firepower to fund those acquisitions and is in the midst of expanding its geographic reach. This is a prime example of an expensive, high quality company
being hit hard by a minor set back and we think it presents another buying opportunity.
Games - thanks for your detailed analysis.
CVSG is one of the companies on my radar for possible investment. Haven't had a chance to look in too much detail and your comments will help. Doesn't look as good as my initial thoughts!
I've inlined >>>> these into the general AGM statement below -- but first I think there is an issue here that may or may not turn out to be significant.
The borrowings have now reached a level of 10 times after tax profits which looks a little uncomfortable in my view :-
"The Board is pleased to announce that in the four month period ended 31 October 2017 the Group's total sales grew by 20.6% and like-for-like sales1 grew by 4.3% compared to the same period last year.
The strong growth in sales of Animed Direct, which we noted in our last results statement, has continued. Excluding Animed Direct, like-for-like sales for the Group grew by 1.5% which
>>> Just a thought, would it not have been a better business model to grow Animed Direct and not go to the expense of all the premises based businesses which each Vet practice involves? -- most businesses that seem to do well these days are asset lite, location light entities.<<<
, while a slower growth rate than in other recently reported periods, is measured against particularly strong comparators in the previous year which moderate as the current financial year progresses.
>>>> You have to wonder why they were performing better before than now, is it an efficiency issue as the company grows and costs are starting to rise with the scale, rather than the other way around?<<<<
The like-for-like trends have shown more variance both within and between months than in prior years, making it harder to identify particular trends.
>>> Without being uber critical it sounds to me like they don't know why or where the business is varying, which calls into question their data gathering or IT integration systems. Hardly surprising as they have to integrate all these new practices.<<<<
The Board believes that the slower like-for-like growth probably reflects the impact on consumers of the greater general uncertainty
>>>> I thought the whole basis of the message the company has always stated is that the clinical pet care business is somewhat immune to consumer attitudes and your little moggy or your pampered pooch comes first on the list.<<<<
widely evident in the UK economy and some shortage of clinicians in the UK.
>>>> Why would there be a shortage of clinicians? If they buy a practice, then the clinicians are already there, which suggests perhaps some are less than happy and have moved on?<<<<
Customer loyalty remains high and our healthy pet scheme memberships continue to show excellent growth, at a run-rate in line with the 20%+ level reported at our most recent year end.
>>>> That's the first positive thing so far in this statement. One comment on this though id that pet insurance is now a very competitive business and more so with the advent of comparison web sites -- It's going to be difficult yo make high margins on the subscription based petcare service back by insurance and regular payments<<<<
For many years it has been challenging to recruit veterinary surgeons in the UK. In spite of the fact that CVS believes it is able to offer new recruits the broadest range of career paths and opportunities within the UK industry, we note that these challenges have increased since the vote to leave the European Union.
>>>> Here we go again, let's use Brexit as an excuse, it's starting all to sound a little oohps we need to find a blame message.<<<<
The Group intends to implement a number of measures to encourage more veterinary surgeons and nurses to work for CVS. These measures will include increasing some salaries by more than inflation as well as improving flexible working opportunities. It is intended that any increases in salaries will be funded through price increases.
>>> OK now we are getting to the crux of the issue, they are leaving aren't they? -- That means they are upping the salaries and passing this on as a price rise to the customer -- not good -- there is still a lot of competition out there -- this is the
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