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CVS Group – AGM commences “pleased to announce” re. sales, so why are the shares slumping?

By Steve Moore | Thursday 30 November 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Shares in veterinary group CVS (CVSG) are currently sliding despite an AGM Statement commencing “the board is pleased to announce that in the four month period ended 31 October 2017 the group's total sales grew by 20.6% and like-for-like sales grew by 4.3% compared to the same period last year”

It is though added that excluding Animed Direct (on-line dispensary and retailer), “like-for-like sales for the group grew by 1.5%” - a slower growth rate than in recent prior periods and that “the like-for-like trends have shown more variance both within and between months than in prior years”.

The company points to that the recent is “against particularly strong comparators in the previous year which moderate as the current financial year progresses”, but the feeling of a tougher operating climate is then added to by a noting of “greater general uncertainty widely evident in the UK economy and some shortage of clinicians in the UK”. On the latter, it is stated that action is to include “increasing some salaries by more than inflation as well as improving flexible working opportunities. It is intended that any increases in salaries will be funded through price increases”.

Hmmm. Price increases may be “intended”, but how easy are they going to prove to be in a self-admitted economic situation of “greater general uncertainty”? The company points to a continuing strong pipeline of acquisitions and that “the integration of our recently acquired assets provides strong underpinning for the group's overall growth expectations as well as affording the opportunity to derive increased benefits from synergies and scale” - and there should be a decent degree of resilience from a business with veterinary practice at its core.

However, house broker N+1 Singer has trimmed forecasts and its latest numbers suggest a price/earnings multiple, with the shares currently at circa 1100p, of approaching 24x. Given the reported situation, that still looks high and this looks a sell.

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