CVS Group plc (lon:cvsg)
CVSG – Promising But Possibly Expanding Too FastCVSG?


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Title: CVSG – Promising But Possibly Expanding Too FastCVSG?
Company: CVSG - CVS Group plc
Share Price Then: 418p
Author: Ian Smith
Date: Mon 04 Feb 2019
Comments: CVSG owns over 500 veterinary surgeries in the UK, Netherlands and Republic of Ireland, employing over 6,150 staff, acquiring 52 in 2018 and 62 in 2017.

With a last reported turnover of about £327million and an operating profit of £17.7million they are more than just a vet.

They cover pets, horses and farm animals,
Laboratories that provide services to both the group vets and third parties (68%),
Crematoria that provide services to both the group vets and third parties,
MiPet, A range of own brand drugs,
MiPet Cover, own brand pet insurance,
Animed Direct, On-line pet shop for medicine, food and fun things.

With over 100 new practices acquired over the last two years this has to be a concern, along with central adin costs of just under £10million or 3% of revenue.

Some of this growth was funded by a share placement in 2018 which generated £58million reducing debt from £100m to £69m, but by the end of Dec 2018 this had increased to £116m.
Is this too muich debt? The accounts use an “Adjusted EBITDA” which makes Earnings of £17.7m an Adjusted EBITDA of £47m and a Debt To Adjusted EBITDA of about 2.4.

This increase in debt is mostly due to acquisitions rather than operating costs but the debt includes £65 million due in 2021. At this point in time with about £15million of cash it is hard to see there being enough cash to pay it.

Sure the group is getting bigger but if you look at the Intangible assets £203m/£167m (2018/2017) and Property, plant and equipment £48m/£43m (2018/2017) it seems that many of the acquisitions are not coming with buildings, just the goodwill.

I also follow Dignity funeral services and they have had a problem where they have bought local funeral homes and very quickly the corporate culture settles in and sales drop off.

So unless the anti-compete clauses are very strong there is a danger of new surgeries appearing within a few years and a few miles taking back the sold customers.

What is attractive to me is that we are seeing a group becoming big enough to be more than just a collection of local vets.

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