Midas share tips: CVS Group and Immupharma

By Joanne Hart for The Mail on Sunday
Updated: 09:25 EDT, 7 June 2009

We claim to be a nation of animal lovers and we certainly spend serious amounts of money on them, making sure they get the right food and pills for good health.

CVS Group: Pets mean pounds

CVS Group is perfectly placed to benefit as it owns and manages vet practices across the UK.

Formed with the purpose of creating a nationwide group of vets, it has 60 practices and 167 surgeries as well as a pet cemetery and four diagnostic laboratories.

Originally backed by private equity, CVS joined the Alternative Investment Market in 2007, since when it has delivered muscular growth, both organically and through acquisition. S

ales in the year to June 2007 were £39m and this year turnover is expected to be £77m, rising to more than £90m in 2010. Profits in 2007 were £2.3m and should top £6m this year, increasing to at least £8m next.

Yet the share price has not done well. CVS shares floated at 205p and rose to more than 270p last year. Since then, they have fallen back to just 142p. The decline is largely due to concerns about the group's debt position. Capitalised on the stock market at £73m, CVS owes its banks £44m and some analysts worry this is too much.

These fears are almost certainly overdone. CVS generates plenty of cash and is perfectly capable of paying off its debts as they fall due. Customers pay vets immediately so there is little danger of the company running into cashflow problems. In fact, chief executive Simon Innes and finance director Paul Coxon are sufficiently confident about the company's position that they believe they can continue to acquire practices out of existing cash.

Innes is an experienced operator.

He was chief executive of optician group Vision Express from 2000 to 2004, during which time he transformed the company from a lossmaking business to one of the most profitable optician chains in the UK. Coxon, meanwhile, provides a steady hand on the tiller, having spent 19 years in finance and accounting.

CVS is not completely immune from the forces of recession. Some pet owners are grooming their animals less frequently or buying them fewer toys, but they are still extremely focused on pet health, often spending more money on their animals' wellbeing than their own.

Midas verdict: CVS Group still has less than eight% of the vet market for small animals but it is keen to grow and is well positioned to do so. Many vets prefer to devote their time to caring for animals rather than worrying about the administrative burdens associated with running a practice. CVS gives them this freedom and is the largest company in its sector. The more it grows, the more profitable it becomes and the more vets want to be a part of it. This virtuous circle has already begun and should gain momentum over the next few years. Also there is always the possibility of bid interest from overseas. Buy and hold.