Analysts at RBC have upgraded CVS Group PLC (LON:CVSG) to ‘Outperform’ from ‘Sector Perform’ as the bank was positive on the company’s underlying prospects despite recent issues with acquisitions.
In a note to clients, the bank said the recent underperformance of some recent acquisitions for the AIM 100 veterinary services provider was “something of a surprise, given the company has an extensive track record in making acquisitions since IPO (over 450)”, but added that these would remain “short-term in nature”.
READ: CVS says full-year earnings hit by heavy snowfall, lower-than-expected acquisitions performance
RBC also added that despite investors’ concerns on slowing underlying growth, the company had still had “room to grow in the UK and more again across the continental EU”, while also maintaining exposure to the “fundamentally attractive and defensive pet healthcare end-markets”.
However, the bank also cut its target price for the firm to 1,190p from 1,230p to reflect reduced earnings per share (EPS) multiples for the 2020 financial year, on the assumption that acquisitions would continue and the deployed capital expenditure to complete them.
“With the underlying picture largely in-line with our views expressed at initiation (only recently) we again see the pullback [in the share price] as an opportunity for investors given CVS is still a leader in an attractive market,” the broker said.
In a trading update on 2 August, CVS said heavy snowfall earlier this year and a lower-than-expected performance from some acquisitions hit its full-year earnings, causing its shares on the day to drop around 16%.
In mid-morning trading Monday, CVS shares were up 2.5% at 938.5p.