Cvs Share Discussion Threads

[lomax99] 09/4/2013 13:32

Interesting announcement that Pets at Home is taking over Vets4Pets, the combination adds 93 Vets4Pets veterinary practices to their retail store vets offering, now providing a service at a total of 210 locations.

[noddlesnz] 14/12/2012 23:47

I thought the like for like sales were quite impressive. At this rate, they will beat forecast revenue of the highest analyst.

However the market reaction was muted. Any thoughts?

[androvitch] 10/10/2012 10:00

Let me correct a point in my previous post - I now see about 15% discount to fair value. So I'll be holding and expecting a nice rise over the next 12 months as the value catches up, growth from recent acquisitions come through and the business continues to generate a growing cashflow.

[ariane] 09/10/2012 19:27

Andro

not a lot to say at the moment
but seems to be going in the right direction

[androvitch] 09/10/2012 18:46

You should know how I feel about this share from my previous posts. I'm quite heavily invested, but holding onto it, as I think it's still undervalued. A pretty simplistic view - this has a robust business model, great story of structural competitive advantage, good cash generation, significant growth opportunity, and trades at an EV/EBITDA multiple quite a bit lower than I woudl expect of a company with these characteristics.

I'd still like to see mgmt focus more on growth, increase leverage, reduce/stop dividend and focus on the core business - surgeries and online cross-sales (I'll allow them labs, but I think the funerals are a distraction). I'd also like to see them reporting online product sales separately and add kpis on % of surgery customers buying online and average online spend per customer.

Even if fairly valued today, I think it's a decent mid-term growth stock. All that said, where I used to see this as a 2-bagger, I think it's now more like a 30% discount to fair value, with target price rising in future years in-line with OCF growth. So I'd downgrade my view from strong buy to cautious buy for now. There is clearly some profit taking by investors who are a bit tired of waiting, but I believe there is more growth for the patient, and it hould be more steady now that there is some momentum in the results.

PS, nice to see a little comment back again on this bb.

DYOR etc!

[ariane] 09/10/2012 15:57

in my case i'd be locking in losses
if i'd bought at the time of the initial offering


thanks for your constructive post

[stluke] 09/10/2012 15:55

I think its had a good run over the past year especially so the last few months off the back of decent results, I personally think there was enough in the last set of results regarding future consolidation and potential growth to stay invested but a short term pull back has to be on the cards so depends if you want to lock in some profit.

[ariane] 09/10/2012 15:40

i'am not sure whether this share is still worth holding

what think you stluke

[stluke] 09/10/2012 11:14

Large volume on a blue day is very encouraging, I wonder if the 2,383,722 is a purchase or Harwood Capital disposing of more shares following disposals last week by them, should get a holding notice shortly as thats 4% of the share capital.

[mike24] 15/8/2012 15:28

9ml shares showing on the offer side to-day
as dty they should BUY the freeholds on expansion
29/8
70k @ offer price 135 looking good to break 12m high

polymorphic light eruption, is now affecting 20% of Scandinavians
and at least 5% of people in south Australia & NZ so animals in northern
hemisphere, horses without field shelter are very vulnerable, and lack
of experience in treating problems, and unduly expensive

[mike24] 19/6/2012 12:45

would expect next trading up-date to be positive,
but share price has taken a hit in last couple of yrs in july,
11/7 125k@117.5p holding back hoping to buy a bit cheaper,
13/7 might be turning point
2/8 22.500 @125.87
chine house veterinary hospital, custom includes treatment for
UV rays affecting animals, think will be a big area for veterinary practises
as word spreads who can get satisfactory results,which this wet summer
has aggravated and inflicted great pain on horses,with owners prepared to pay/travel
for successful treatment,edit steroids seem to make the problem worse

[lomax99] 26/4/2012 10:44

Any news? Price up a bit recently, despite another large disposal by the CEO (this time to fund a divorce settlement) and an institutional sale.

[lomax99] 30/6/2011 08:38

Hopefully the trading update will be out any day now, they release one on 29th June last year.

[androvitch] 31/5/2011 16:48

Looks like a revaluation in proper flow this time. I'm expecting next set of results will look quite a lot better than the last, probably beat consensus.

There were some large cash hits from acquisitions in the last results, with few months of their profits consolidated into the annual performance. Also some external economic pressures then, causing customers to delay standard treatments. So I think next time we see:
1. sizeable upswing in revenue and profit £ from the recent acquisitions now fully consolidated
2. return to lfl growth as they lap a bad year and consumers stop putting-off spending.

Hopefully management will also make a statement about their future plans to stay focused on the core business too (see my earlier post)

Does anyone know when next trading update comes out?

[androvitch] 25/5/2011 16:46

I would be hoping to reach something at upper end of 150-200 range. But let's see, I've been waiting so long for a move on this that I don't mind waiting a bit longer.

And if it falls back again, I'll be buying more...

[campbed] 25/5/2011 16:37

lomax99: you got your 10% move up today, though no newsflow and no reported large trades on LSE.

[lomax99] 10/5/2011 17:13

About time this started to move, especially given the steady flow of institutional buying.

[stockhound] 10/4/2011 21:18

I thought it rather funny that CVSG came up as a Zulu Principle stock in my latest screen. I've been watching it a while for purely value / cashflow purposes, but it seems that the growth boys might start coming back with the current feature set.

i.e. Mark Slater and the PEG crew.

[androvitch] 22/3/2011 16:08

Per my last post...

Summary investment thesis

1. True competitive advantage in small animals sector
2. Short-term external effects impacting headline economics, but structural business model is sound. Expect a rapid improvement as lap the impact of winter weather, and further rebound if/as consumer confidence grows
3. Undervalued today for level of cash generation and growth
4. Clear upside opportunities to drive value from the core business
5. Potential to crystallise value in the future, e.g. sale to trade buyer (pet product retailer), or defensive stock offering annuity dividend


Competitive advantage

1. Cost advantage
- Procurement scale
- Shared admin platform
- Staff rostering efficiencies in geographies with sufficient surgery density (especially important for out-of-hours)

2. Capability advantage
- Roll-out of efficient surgery management practices and approaches across estate
- Best practice sharing between practices and continuous development

Very significant advantages vs small, independent surgeries. Smaller, but relevant vs larger chains of surgeries.

Allows the company to provide better services to customers, price keenly and/or generate better profits than competition and successfully drive growth to further extend advantage.


Key risks

1. Like-for-like sales growth
- Falling like-for-likes have become a bit of a recent concern with recession and weather impacts both noted in management and analyst notes
- Without lfl sales growth, wage and cost inflation will eat away at margins
- Investors should be looking for lfl sales improvements in future RNS, especially coming of the back of depressed sales due to the recession and weather points
- Given CVS's #1 position and cost advantage, it should be able to win customers and lead pricing in the market
- Additionally, there are almost certainly opportunities for better cross-selling of diagnostics and products (e.g. pet diets)

2. Size of transactions
- Acquisition synergies come from transferring small, inefficient surgeries to the scale CVS platform and processes (huge scale effect)
-- Very large synergies for small practices moving onto the CVS platform
- However, larger chains will already have achieved some/most of the scale benefit prior to CVS acquisition. So capability-based synergies become more important
- As CVS grows larger, need to acquire larger number of surgeries each year to maintain growth rate
- The trade-off is either the complexity and costs of multiple small acquisitions vs the lower benefits of larger acquisitions.
- Ultimately, this closes down the attractiveness of acquisitive growth, but it looks to be in the distant future for the time being (perhaps one to become more worried about when the business reaches 20-30% market share)

3. Reputation impacting availability of transactions
- Ask a few independent vet surgery owners what they think of CVS. You'll hear both some very positive views and harsh words
- Surgery owners tend to be in the business because of their love of animals, rather than love of money. In CVS the 2 come together, but there is some scepticism about whether CVS can care as much for the animal's welfare
- Up till now, CVS has managed this well, but it has the potential to impact availability of future deals should the reputation worsen

4. Deal premiums increasing
- There is a risk that management is finding that it needs to complete deals at less attractive premia in order to continue to drive growth, especially in current trading environment of poor lfl's
- Unfortunately, management does not disclose much info on this, and so little evidence is available at this point
- One has to assume that non-disclosure means that they have a reason not to share this info (e.g. highlights the risk to shareholders or impacts competitiveness of future transactions)
- However, it is also possible that the prices of acquired surgeries are falling, e.g. fire-sales of poor or bankrupt businesses due to the recession, difficulties for small business borrowing, and competitiveness of the market


Cash considerations

One specific area that is not a concern is cashflow (others have mentioned the low cash balance, lack of dividend and high leverage as an issue)
- Cash balances have been low recently as management chooses to invest everything in growth rather than distributions. This seems like a very sensible strategy for now, while dealflow is available
- The business is highly cash generative in the current model, around £15M annualised EBITDA, of which £2-3M goes on interest and tax payments, leaving best part of £12M for other activities
- At the moment, the business is rapidly repaying debt and deleveraging. Even with the current leverage and reluctance of banks to lend, the business should have the capacity to take on more debt if needed.

The cashflow should grow quite quickly, as LfL's recover and synergies from recent acquisitions are realised. This is even without any further acquisitions.

It's incredibly rare to find a business generating lots of cash, with a solid growth history and trajectory and clear competitive advantages at this level of 6.5x EV/EBITDA. This alone indicates a significant upside, and the business would be fairly valued at approx 150-180p per share, depending what you believe on the risks above. As this business grows this will also increase.


What management should do

1. Focus on the core cash generation model, i.e. acquire small surgeries > massively improve economics > grow cash > acquire etc

2. Restart LfL growth – get the customers in, care for their pets, cross-sell products (direct to online platform, below). As market leader, it will also start to pay to encourage pet ownership in areas with a high concentration of CVS surgeries.

3. Aggressively drive growth of online platform
- Drive trial by existing surgery customers, with direct marketing, incentives and training of surgery staff
- Acquire customers from store-based competition with worse economics
- Need to target leading scale in some product segments to ensure online cost advantage that can be translated into pricing and 1st consideration

4. Reduce distraction of ancillary pet cemetery and diagnostic lab businesses. These have the potential to suck up a lot of cash that would be better directed to improving and growing the core business. The businesses will create more value if built in the future, when the core business is at an even larger scale. At this point, it will be possible to drive to scale in these ancillary businesses very rapidly and make more efficient investments using the latest technology only available at larger scales and in some cases still under development.

5. In time, look for ways to crystallise the value created. The most obvious way is to be acquired by a major UK pet supplies retailer (similar logic to Halfords' acquisition of Nationwide auto centres). This would drive significant synergies.
- revenue synergies from leveraging the combined customer base and brand strength
- cost synergies in some product segments, G&A and marketing expenses

[androvitch] 22/3/2011 16:05

I don't post my opions online very often, but I have been following (and investing in/out) this stock for a long time and believe this presents a very exciting opportunity. I wanted to crystallise my thoughts for myself on paper in the first instance, and I'd welcome your feedback and challenges to refine this view. Right now, I'm 100% convinced in the med-term large upside potential.

[stockhound] 20/3/2011 20:30

The company is clearly heavily indebted but its generating plenty free cash flow. Something like £7m last year. It used all that cash to make acquisitions - it's clearly comfortable with the debt burden as otherwise they'd have just used the cash to pay down debt.

I don't know enough about it yet, but when a company has a free cash flow yield of 14% + it makes me sit up and notice. Question is.... are the acquisitions adding value? They are paying no dividend as they are busy acquiring small veterinary surgeons. Would be much more comfortable investing if the company was already mature and spitting off that cash as divis... needs more research.

[uncletomg] 23/1/2011 00:00

I'm going to buy! Who's with me? People will always have pets!

[farmsted] 30/12/2010 07:29

Not many 'paws' venturing out in the snow and the heating bills are running !!!