Barclays Initiates Coverage#
Barclays has started its coverage of CVS Group Plc, a British veterinary services provider, with an 'equal weight' rating. This means they expect CVS's stock performance to be in line with the market average. The bank has set a price target of 1,340 pence, which is higher than the current share price of 1,182 pence as of March 19.
Challenges in Acquisitions#
Barclays points out that CVS's recent acquisitions in Australia are not generating returns that meet their cost of capital. Specifically, they estimate post-tax returns of 6.9% for acquisitions made in fiscal 2024 and 8.6% for those in fiscal 2025, while the cost of capital is estimated at 10.2% and 9.7%, respectively. This indicates that CVS is not making enough profit from these investments to cover their costs.
Competitive Landscape and Management Changes#
The competitive environment in the UK is also a concern for CVS. Barclays notes that CVS's management has acknowledged that while they expect long-term positive returns from their investments, the immediate benefits are not significant. Additionally, the departure of Graeme Cramb, the managing director for Australia, to a rival company poses risks during a critical expansion phase.
Regulatory and Market Factors#
Barclays highlights several factors that could limit CVS's growth opportunities, including increased regulatory scrutiny and competition from private equity-backed firms. CVS currently holds about 9% of the UK small animal practice market, compared to 20% held by a competitor. The ongoing investigation by the Competition and Markets Authority is expected to conclude in spring 2026, but it has not mandated any forced sales of assets.
Barclays forecasts adjusted earnings per share for CVS to rise from 83.8 pence in fiscal 2026 to 110.4 pence in fiscal 2028, indicating a compound annual growth rate of 11.3%. This growth is seen against a backdrop of a competitive market and regulatory challenges.