The market likes today’s full-year results report from veterinary services provider CVS Group (LSE: CVSG) and the shares are up more than 6% as I write.
One feature of the trading record over the past few years has been steady annual increases in revenue – people love their pets and are keen to look after them properly, which has no doubt helped CVS to grow.
Impressive figures
But the company must be doing many things right because today’s figures are impressive. Revenue rose just over 24% compared to last year, cash from operations increased by almost 12% and adjusted earnings per share moved a shade over 10% higher.
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In a show of confidence, the directors slapped 10% on the full-year dividend while explaining in the report that strong financial performance and cash-generation supports the increase. On top of that, there’s “sufficient funds for further investment in the business.”
However, you won’t get rich on dividend income from this stock because the payment is covered about 8.5 times by adjusted earnings. It’s clear the directors are holding plenty of cash back, which is quite normal when a firm has plenty of ongoing growth prospects. With the shares near 967p, the forward-looking dividend yield for the current trading year to June 2020 runs close to just 0.6%.
If you buy into CVS it’s likely to be for its growth, and the year was a story of two halves on that score. Chairman Richard Connell explained the first half of the year was “disappointing” and there was a “significant” improvement in the second half. He said the turnaround occurred because of actions the firm took to address the “key issues” which affected performance.
Bearing down on costs
Looking back at the earlier half-year results, it’s clear revenue growth remained strong, but the firm was having trouble squeezing profits from its turnover. Part of the issue was that CVS had been employing expensive locums to fill veterinary surgeon and nurse vacancies. However, it seems progress in hiring direct staff has reduced costs in the second half.
The firm has also been tightening up procedures at some of its under-performing individual surgeries and working to train staff to maximise cross-selling opportunities across the business. Right now, CVS has 510 surgeries in the UK, the Netherlands and the Republic of Ireland, but acquisition activity has slowed because of generally high asking prices in the industry.
I like the look of the growth story here and I’m impressed with the way the firm consults its shareholders, which seems to be the source of initiatives to add value, such as cross-selling and not over-paying for acquisitions and other things. Connell pointed out that CVS operates in a sector with favourable market and consumer trends, “which has proven resilient in past economic downturns.”
Looking ahead, the outlook is positive and the firm isn’t bothered by the prospect of Brexit. I like this one and I’m inclined to pick up a few of the shares. Meanwhile, the forward-looking earnings multiple for the current trading year sits just below 20. I’d aim to hold for at least 10 years.
