Superb half year results, smashing market expectations, trigger yet another round of forecast earnings upgrades for veterinary services star turn CVS (CVSG:AIM) and send the shares scurrying 7.34% higher to £11.11.
Suitably impressed, broker N+1 Singer now sees scope for CVS’ earnings to more than double in the next five years, arguing for ‘fair value of £13 on a 12 month view’.
You can pick through interim figures to December from the Diss-based small and large animal vet practices operator here. The numbers impress across key metrics; total sales rose 28.5% to £129.4m with a boost from acquisitions, like-for-like sales grew by a better-than-expected 7.2% and taxable profits skipped 47% higher to £16.5m, beating expectations by a tidy 10%.
Risk-averse investors should also note debt of £68m was down £25.1m from 1 July, reflecting strong cash generation and £29.6m of recent placing proceeds.
DEAL HUNGRY
First half highlights included further earnings progress from the practice division, a strong recovery for online dispensary Animed Direct as well as the acquisition of 6 surgeries in Holland, where CVS is looking to establish a firm foothold.
On home turf, CVS’ management believes that ‘the UK veterinary sector will continue to provide opportunities for further consolidation and strategic acquisitions across each of the small animal, equine and large animal segments. It is pleasing to note that, even following a period of exceptionally high activity, the group's pipeline of potential acquisitions remains very strong.’
‘Since the period end a further 13 surgeries have been added and commentary on the site pipeline is upbeat,’ writes N+1 Singer, ‘although the market remains competitive.’
The broker is reassured by the current trading commentary too. CVs says like-for-like sales in January and February reverted to a more ‘normalised’ level, which the broker interprets as growth of around 3%, good going given a 5% prior year comparative.
‘The move into pet market insurance is progressing positively and on track for a soft launch in late summer 2017,’ adds N+1 analyst Sahill Shan.
PREMIUM RATING
CVS’ first half beat and further corporate activity coaxes N+1 Singer into raising its earnings per share estimates for the years to June 2017 and 2018 by 5% to 41p and 43.2p respectively. These projections are based on forecast growth in adjusted taxable profits to £33.2m (2016: £24.9m) this year and £35.6m next.
