CVS Group gallops higher as trading beats expectations

CVS Group's shares shot upwards on Friday after the company said that its full-year results were set to outstrip expectations following a jump in sales over the first eight months of its financial year.

The veterinary services provider's revenue for the six months ended 31 December came in at £195.1m, an increase of 24% compared to the same period the year before, though profit before tax dropped by 74% to £1.6m as cost of sales increased by 34% to £113.2m and administrative expenses jumped 20% to £78.5m.

Critically, the company also said that trading in the two months since the half-year end had exceeded management's expectations, pushing the increase in its like-for-like sales for the financial year to date up to 5.0%.

Revenues came in higher after the AIM traded company's Practice division saw a 25% increase in revenue to £178.5m, while the much smaller Laboratory and Animed Direct divisions returned respective revenues of £9.3m and £10.7m, up 6% and 16% respectively.

Meanwhile, revenue at the Crematoria Division rose by 13% to £3.6m and Central Administration recorded costs of £7.0m.

Cash and cash equivalents stood at £12.7m at the end of the period, up from £10.3m at the same point the year before, while a dividend of 5.0p per share, up from 4.5p, was paid in December 2018 in respect of the year ended 30 June 2018, with the board to continue to review its dividend policy.

CVS said it will push ahead with plans to expand its referrals business and out-of-hours support for its practices, while the Animed division will see the launch of a new warehouse management system to help grow product lines.

A statement from CVS Group said: "Whilst there is ongoing uncertainty in relation to Brexit, the board is confident that the group can withstand the impact of a hard Brexit outcome. Manufacturers and wholesalers are increasing their stock holdings by an additional three months' supply and the group has increased its own stock holding in order to protect against short term business disruption."

The statement added that Brexit uncertainty had already had a detrimental impact on the recruitment of overseas clinical staff with less EU veterinary surgeons and nurses willing to come to the UK afresh post the referendum vote and some EU employees returning home.

On 29 January, the outfit had warned on its full-year profits, guiding towards operating profits "materially below" then current market expectations on an EBITDA basis.

Analysts at Peel Hunt quoted by Proactive Investors said the shares remained exceptional value for money.

"The trading update with the interims reads better than expected, with a pick up in like-for-like sales, improvement in gross margin and a reduction in the vacancy rate. This does not remove the issues, but certainly eases any concerns regarding short term issues and the balance sheet. We are nudging up our pre-tax profit forecast by 3-5% to reflect the recent improvements," said the note.

CVS Group's shares were up 17.21% at 606.00p at 1056 GMT.