Trio of tips rocket since Brexit vote, now can they keep it up?
THE British love their pets. There are around 20 million in the UK, including 8.5 million dogs and more than 7 million cats. Numbers are rising and attitudes are changing.
Once, owners were happy to feed their pets simply with tins of Pedigree Chum or Kitekat. Visits to the vet were few and far between. Today, Fido and Mopsy can feast on grain-free food, North Sea herring and wild bison, all in handy pouches. Annual check-ups are increasingly the norm and, like their owners, pets are living longer and benefiting from medical progress.
CVS Group, Britain’s largest vet chain, is well placed to profit from these trends. It owns about 400 surgeries in the UK and a fast-growing operation in Holland too. CVS also runs Animed Direct, an online food and medicine business, it operates a loyalty scheme for pet owners and owns seven pet crematoria.
There are diagnostic laboratories too that help identify diseases, allergies and other conditions. These do not just provide services for CVS vets but for rival chains as well. They even work for zoos, both here and i n countries including China and Abu Dhabi.
CVS ha s gr o wn consistently in recent years, both organically and via acquisition and chief executive Simon Innes is ambitious. The firm’s UK market share is about 13 per cent and he may well take that to 20 per cent within five years. CVS is also keen to expand in the UK farm animal sector, a market valued at about £1.4 billion. Innes has only a few ‘large animal’ vets, but analysts expect this business to grow steadily, including the establishment of multi-animal practices, for small and large beasts. The Dutch operation has started well and should continue to develop, as the market is fragmented, so there are plenty of buying opportunities. Further overseas expansion may also be on the cards over time and the firm is planning a move into pet insurance, too. CVS Gr o u p ’s financial year ends on Friday, a trading update will be released next month and re s u l t s wi l l b e announced in September. Analysts currently expect a 21 per cent rise in revenues to £265 million, a 33 per cent surge in profits to £33.2 million and a 14 per cent dividend increase to 4p. The firm has a tendency to exceed City forecasts, however, so the results may well be even better. Looking ahead, there is little doubt that Britain’s economic prospects are worse now than they were before the Brexit vote and, as inflation grows at a faster pace than wages, people will feel poorer.
The impact on CVS may be muted, however. Like-for-like growth did tail off after the financial crisis and even declined in 2010 but sales picked up fairly sharply and have been robust since. Growth might slow over the next couple of years but CVS is in better shape than seven years ago, with a wider range of businesses and a loyalty scheme that tends to keep customers coming back.
Midas verdict: At 1330p, CVS shares are not cheap but the price reflects the company’s reputation as a strong and growing business in a market with long-term potential. Shareholders should not sell out now and investors with a five to tenyear time horizon could even find value at current levels.