Pandemic winner closes in on AIM top 10

Our equities expert examines a company that has cashed in on a pandemic trend.

The pet ownership boom continues to benefit CVS Group (LSE:CVSG) after annual results left the £1.9 billion-valued vet services business near to joining the top 10 largest AIM-listed stocks.

CVS floated on the junior market in 2007 when it had a portfolio of 100 veterinary surgeries and a valuation of just over £100 million.

It now has more than 500 sites and over 1,900 vets, with the favourable trends seen during the pandemic today contributing to a 19% surge in annual revenues to £510.1 million and 237% rise in earnings per share to 27.3p.

A price rise put through in July, in addition to the delayed one implemented in January, means like-for-like sales are running 14.4% higher in the first two months of the financial year.

Shares rose another 10% or 250p to 2,770p as chief executive Richard Fairman said he saw a number of opportunities for growing the business.

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He added: “The very positive start to the new financial year is encouraging. We remain focused on providing first-class veterinary care and look forward with confidence.”

Analysts at Peel Hunt raised their earnings estimates by 3%, although their new price target of 2,750p has already been overtaken by stock market events.

They said CVS looked good value both against peers in the global pet care space and compared to recent deals in the veterinary market, such as this month's reported £1 billion sale of Medivet to CVC Capital Partners.

At 2,750p, CVS trades on a multiple of 17.5 times 2023 earnings, compared with Medivet being acquired at closer to 20 times. Peel Hunt said: “We see the company as increasingly attractive given the stronger growth prospects combined with the broad array of services provided.”

DFS confirms dividend

The broker is also upbeat on DFS Furniture (LSE:DFS) after the retailer returned to the dividend-paying ranks alongside underlying profits of £105.8 million. Revenues for the year to the end of June were 47.4% higher at £1.07 billion and 7.2% better than the same pre-Covid period in 2019.

Strong consumer demand has continued in the first 12 weeks of the 2022 financial year, with the current order bank at a record high.

Shares rose 1% to 269.3p today and are up 17% in the year to date, although Peel Hunt has a price target of 450p after highlighting DFS's continued market share gains and the company's strong cash generation.

DFS confirmed a final dividend of 7.5p to be paid on 23 December and said it would in future look to award between 40% and 50% of annual underlying cash generation.

Peel Hunt said: “They trade on a single-digit price/earnings multiple but market share is being won and the cash-generative model should throw off special (dividends) in time. A 5% yield, based on just the ordinary (dividend), is a gift, in our opinion.”

Safestyle gets a lift

Favourable home improvement trends have also lifted Safestyle (LSE:SFE) after the PVCu replacement windows specialist reported its strongest performance since the second half of 2017.

Underlying profits of £5.1 million for the six months to 4 July were accompanied by an order book 65.7% higher than the end of the first half of 2019, marking the effective completion of a turnaround plan launched in 2018.

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Trading in July and August has been in line with expectations and the company is being proactive in managing the challenges of rising input costs and supply chain disruption.

Safestyle cancelled its dividend in 2018 and raised £8 million to strengthen the balance sheet during the pandemic, but now says it will liaise with shareholders later this year about a future distribution policy.

Analysts at Zeus Capital said this could include special dividends or buybacks to complement the usual dividend.

The house broker added that a price multiple of 12.9 times current earnings did not look expensive when considering the speed of the earnings recovery and improvement in cash flow. Counterparts at Liberum have a price target of 80p.