CVS Group

Veterinary services market consolidator CVS has completed another bolt-on acquisition, whilst conceding current year financials will fall slightly short of forecasts.

The latest takeover is that of Yorkshire-based Ark, a profitable four-site veterinary practice group taking the total number of practices acquired by CVS to date in 2010 to 37, including two veterinary hospitals, a laboratory and a referral centre. Floated on AIM in 2007, CVS now runs 205 surgeries, six diagnostic laboratories and 1 crematoria across the UK and remains the biggest operator in a market CEO Simon Innes insists offers ‘a strong pipeline of further acquisition opportunities’.

CVS looks particularly well placed for growth, employing its strong cash generation to buy new surgeries on sensible multiples, then expanding margins and increasing sales at acquired surgeries through a combination of better buying power, sales and marketing assistance and efficiency gains.

Alongside the positive acquisition news, CVS admitted results for the year to June ‘will be slightly below current expectations’. Although like-for-like sales have shown growth, second half momentum has not been strong enough to offset poor winter weather, whilst bolt-on deals have been more second half skewed than in previous years.

Broker Brewin Dolphin has slightly downgraded its June 2010 profit forecast to £9.8m – still representing significant growth over last year’s £8.3m result – on an expected rise in turnover from £76.6m to £87.4m. For June 2011, when CVS will enjoy the full benefits of the recent £12.2m Pet Doctors acquisition, profits are forecast to reach £14.2m, producing 36% earnings growth to 18p.

Despite this unwelcome, though one-off, earnings blip, the fundamentals of the CVS story remain intact and the shares, backed by Growth Company Investor at 185p in February, remain a strong long-term buy.