Higher costs weigh on profits at CVS Group

(Sharecast News) - Veterinary chain CVS Group posted a fall in interim profits on Thursday amid higher costs and "challenging" market conditions in the UK. The group - which has 475 vet practices in the UK and Australia, as well as laboratories and an online retail arm - posted a 5.8% jump in revenues in the six months to 31 December, to £356.9m, while like-for-like sales rose 2.7%.

However, pre-tax profits came under pressure from higher costs, including those associated with acquisitions, the Competition and Markets Authority's probe into the veterinary market and CVS's recent move to the main market from AIM.

As result, pre-tax profits from continuing operations fell 4.4% to £15.2m.

As at 1215 GMT, the stock was trading 5% lower at 1,300p.

Looking to the rest of the year, CVS acknowledged that the economic backdrop in the UK remained "challenging, with low consumer confidence impacting footfall in companion animal practices".

However, it continued: "With the expansion in Australia progressing well, the UK CMA process drawing to an end and the cohort of Covid puppies and kittens, which will require more treatment as they age, CVS remains well-positioned to deliver attractive growth in shareholder value over the medium and long-term." It also reiterated guidance for the current year.

CVS first entered the Australian market in 2023 and has gone on to acquire 33 practices, including two since the period end.

The CMA, meanwhile, published the provisional results of its investigation in October, with its final report due this spring. It is proposing a major shake-up of the sector, which has been criticised for high prices and a lack of transparency. Proposals include forcing practices to publish price lists and making it clear if they are independently owned or part of a chain.

Berenberg, which has a 'buy' on the stock, said CVS's Australian acquisition strategy remained a "significant" opportunity, while the CMA's proposed measures would likely have an "immaterial" impact on its model.

"With CVS now listed on the FTSE main market, and indicatively confirmed for inclusion in the FTSE 250 in March, we think the technical set up here is attractive, while trading and fundamentals are building nicely," it concluded.