Cvs Group Share Price (CVSG)

The six months results to 31/12/12 are out. Phenominal performance in testing conditions. adjusted EBITDA up 5.2%. Profits before adjustments up 10.2%, Revenue up 8.1%, EPS up 116.7%. Net debt reduced by £0.2 m. The group continues to expand with the purchase of 3 more veterinary practices and a pet crematorium. The loyalty scheme membership has also increased by 33%. Cash generation fell by 0.5 m, but still remains at healthy at £7.4 m. Margins from Animed Direct remain low as it builds its prescence in online sales. Margins in the lab practice have also fell due partially to competitive pressures. The Board expects a dividend to be paid at 12/13 at least at the same level (1.5p) as last year. I`ll be retaining my shareholding.

CVS: Panmure Gordon raises target from 160p to 188p, buy rating unchanged.

If CVS is to build on its progress then it needs to avoid past mistakes and must be wary of getting into a race to the bottom for additional online sales. Indeed, should sales growth online slow, then the division's low profit margins will become a problem. And, at 29 times forecast earnings for 2013-14 (see table), CVS's shares look highly rated. However, the company has a largely captive market in the UK and the 'force' is clearly with it. With profit margins set to continue improving and the dividend growing usefully, the shares still have long-term merit.......but as always dyor.......

CVS's entry into e-commerce also showed signs of bearing fruit. Sales at its online pharmacy arm, Animed Direct, more than tripled to £3m, although some City analysts question the aggressive pricing that keeps the division's profit margins so low; that said, e-commerce is generally low-margin. Still, across the whole group, an increase in like-for-like sales of 2.9 per cent in 2011-12 marks an encouraging return to growth. True, CVS's balance sheet carries a lot of debt as the company expands by acquiring individual vets' practices, though there are signs of a structural improvement, with net debt falling by £2.6m to £30.9m during the year. This is a positive sign that the underlying business can generate enough cash both to reduce debt and to raise dividends. True, cash profits dropped 12 per cent to £15m, but that was a result of carrying extra working capital. Meanwhile, free cash flow of £7.2m was plenty to cover £3.8m-worth of acquisitions and £0.6m-worth of dividends.

Operating veterinary practices in a nation that often seems to prefer domestic animals to people should be a great way to make money. With pooches pampered and cats fawned upon, it is a mystery why CVS does not make fatter profit margins as it hoovers up the competition. In reality, pet owners are price conscious and the advent of online animal medicine pharmacies and pet services has exposed the company to fierce competition. However, results for 2011-12 show signs of a concerted fightback and, if the operational improvement continues, then CVS will consign its status as a dog share to the past. The main problem confronting the company was how to compete against e-commerce companies. The answer for CVS is to offset their impact by demonstrating the value of customer loyalty schemes within its 223 surgeries, which can generate stable revenues. The CVS loyalty scheme more than doubled the number of participants in its "Healthy Pet Club" scheme to 65,000 in 2011-12. In the process, it allowed the company to cross-sell to pet owners from across its range of clinical services and produced the added benefit of insulating its sales of medicines from online competition. Finding niches has been the key to attracting sign-ups; for example, the "Kitten Club" is not a cabaret venue in Weimar Germany but a specialist service for owners of young cats. Such is the success of 'pet-club' schemes that monthly subscription revenues doubled to £5.2m in 2011-12.

To counter the recession the group is focusing on its loyalty programme, which aims to improve customers purchases of vaccination and drug sales (which are migrating online). The Chief Executive Simon Innes said of the results: "The progress made in growing the membership of our loyalty schemes and the expansion of our e-commerce activities have been notable achievements in the year. We continue to focus on organic growth whilst also developing new revenue streams and continuing to grow through selective strategic acquisitions." One person who won't be around much longer at the firm is Chief Financial Officer, Paul Coxon, who will leave at the end of the calendar year. Panmure Gordon reiterated its "buy" rating, saying "CVS has exceeded our expectations on most measures, reflecting a strong performance across the board. LFL [like-for-like] revenue progress has been pleasing and continues to deliver positive momentum into the current year." The broker has maintained its forecasts at this juncture, but believes there could be "some upside potential from a variety of sources (organic, M&A, e-commerce) as we progress through the year."