CVSG: A special sit with 2x potential
No, it's not that CVS with the super long receipts
First things first, this idea comes from The European Investor substack, so give them a follow and click on the link for more information:
I am adding my 2 cents to this since I view this as special situation brought on by government action with a catalyst to rerate this stock by 2X in the next 6 to 12 months.
With that disclosure, let’s get to it:
CVS Group plc (“CVSG”) has seen its share price take a hit recently, but the decline seems to stem from two short-term issues rather than any real damage to the business fundamentals.
The first blow came in March 2024 when the UK’s Competition and Markets Authority (CMA) unexpectedly announced a nationwide review of veterinary services for household pets. These investigations typically last 12 to 18 months, so we’re looking at a resolution by late 2025 with a mid term resolution being around the corner mid-year. The second issue was a cyber incident in March 2024, which temporarily disrupted operations and sped up the rollout of a cloud-based practice management system.
If you dig into CVSG’s FY 2024 numbers, there’s little to suggest the business is in trouble. Revenue grew 9.9% to £647.3 million, and adjusted EBITDA increased 4.7% to £127.3 million, maintaining a solid 19.7% margin. The company continues to invest in upgrades and technology, with £43.1 million spent on capital expenditures.
Even after these investments, leverage is a comfortable 1.54x, with net debt at £168 million, well below management’s soft limit of 2.0x. Like-for-like growth was 2.9%, dampened by the cyber incident, but management estimates it would have been closer to 4.1% without the disruption.
On top of that, CVSG’s expansion into Australia, with 22 new practices, adds geographic diversity and growth potential in a market that’s only 15% consolidated—offering a lot of room to replicate their UK success if they are prevented by the CMA from further expansion in the UK.
The CMA investigation is understandably unsettling because regulatory reviews always create uncertainty. That is what presents the opportunity.
History suggests these investigations usually result in moderate changes, like better transparency or fee disclosures, rather than forcing drastic divestitures.
For example, in similar cases with funeral services, groceries, and private healthcare, the CMA introduced measures like standardized price lists or clearer special-offer labeling—adjustments that large, well-run companies can easily absorb. Given CVSG’s existing audits under the Royal College of Veterinary Surgeons Practice Standards Scheme, they seem better prepared than most to handle any new requirements. Management has been proactive, hosting regulator visits and sharing their current practices for quality control, prescription guidelines, and customer communication.
As for the share price volatility, it largely reflects concerns about the CMA’s potential impact on CVSG’s business model and lingering effects from the cyber disruption. However, the company’s results tell a much more stable story.
CVSG has the resources to keep investing in organic growth (e.g., new practice relocations and expansions) and acquisitions that meet its return thresholds. Management is also smartly focusing acquisition efforts in Australia for now, where valuations are attractive, and regulatory hurdles are minimal. Meanwhile, the cloud-based system introduced during the cyber incident is expected to deliver significant long-term benefits for both veterinarians and clients.
Looking ahead, the CMA investigation will likely follow a predictable timeline, with interim updates by mid-2025 and a final decision in late 2025.
Based on past CMA actions, any changes will likely involve clearer fee communication, better referral transparency, or enhanced client consent protocols—none of which are likely to threaten CVSG’s strong position in the market.
Below is a timeline to resolution of the process:
In summary, the recent selloff looks like an overreaction to manageable challenges. CVSG’s core business remains robust, as shown by its strong margins, steady revenue growth, and solid balance sheet. The UK’s pet ownership trends provide a tailwind for the domestic business, while the Australian expansion offers a compelling growth opportunity. For investors willing to ride out the short-term noise, CVSG looks well-positioned for a re-rating once the CMA process concludes. With a proven track record of acquisitions and a healthy financial position, the company is set up for sustainable growth over the long term. Finally, pet businesses are often more resilient to inflation and economic downturns, as many pet owners are unlikely to forgo their fur babies specialized $3/can wet food diets (don’t ask how I know). With much of the negative news likely already factored in, this stock is poised for a strong recovery by year-end.
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New here. Been reading your post and you have really interesting, beautiful special situations ideas. Thank you so much for sharing!!