- First half revenue up 11.4%
- Full year earnings expectations reiterated
- Strong pipeline of acquisitions in Australia
Veterinary services group CVS (CVSG:AIM) delivered strong first half growth with revenue up 11.4% to £329.9 million and adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) 9% ahead at £63 million.
The company said it expects to meet the market’s full year earnings forecasts, but flagged short term inflationary headwinds which left the shares down 3.6% to £15.32 in mid-morning trading.
Over the past year the shares are down 19%, impacted by a 30% drop in September 2023 after the CMA (Competition and Markets Authority) launched a vet sector review.
WHAT DID THE CEO SAY?
Chief executive Richard Fairman commented: ‘We continue to execute on the growth strategy outlined at our Capital Markets Day in November 2022 and during the period entered the Australian veterinary market with thirteen practices acquired alongside a further four acquisitions in the UK.
‘We extended our bank facilities in January 2024 so that, alongside our cash generative business model, we have committed funds in place for the next four years to help fund our investment plans.’
Breaking down the revenue growth, 6% was generated organically (down from 7.5% in the first half to 31 December 2022), implying that acquisitions contributed 5.4%.
Berenberg noted this is the highest contribution from acquisitions since 2019. CVS appears to be moving at pace in the Australian market and anticipates making 10 further acquisitions in the second half.
Fairman told Shares the market has similar characteristics to the UK and has more than 3,500 practices.
The company said it has a strong pipeline of potential opportunities with continued focus on major cities such as Sydney, Melbourne, Brisbane, and Perth.
IMPACT FROM HIGHEST RATES AND TAXES
Higher EBITDA was offset by an increase in depreciation related to increased capital expenditures which resulted in a 9.2% drop in operating profit to £28.6 million.
Higher financial expenses, reflecting the move up in interest rates, acquisitions and a higher tax rate, resulted in adjusted earnings per share falling 2.4% to 44.5p.
EXPERT VIEWS
Berenberg said the strong contribution from acquisitions was the main positive from the results ‘alongside the strong pipeline disclosed for deals in Australia, where we expect ongoing momentum (and likely upgrades) over the remainder of the year.’
Davy analyst Colin Grant took away a similar message, saying: ‘The pipeline is particularly strong in Australia, and it now appears likely that CVS will spend at least £100 million on acquisitions in FY24 in addition to making investments via capex in greenfield sites and Bristol Vet Specialists, a new multi-disciplinary referral hospital.’
