Small Cap Value Report (21 Jul 2014) - CVSG, MBH, WHI

21st Jul '14 by Paul Scott

10 comments 14116 reads

Good morning!

CVS (LON:CVSG)

As far as I'm aware this is the only UK listed (let's see if I can spell it right this time!) veterinary chain. I last looked at it on publication of interims to 31 Dec 2013 here, and at 306p per share was wavering between thinking it was priced about right to a little too highly. The price now is a little higher, at 324p, giving a mkt cap of £187.7m.

There's no denying it's a good growth business, operating in an area where people are spending more on their pets - e.g. having operations done on animals, instead of 20+ years ago the norm was to put them down if anything serious went wrong with a pet's health. So it's all down to whether the valuation is reasonable.

The other issue is their Balance Sheet, which is horrible. When I last looked it had negative tangible assets of £30.8m, funded by £32.1m of net debt. The issue being that debt has to be repaid at some point, which is money that would otherwise be available for dividends, plus it has an ongoing (and likely to increase) servicing cost in interest payments and arrangement fees. Bear in mind that whilst interest rates may be low, a lot of banks are coining it in with excessive arrangements fees, a hidden cost. So debt is not as cheap as it might look at first. The other issue with debt is that it makes an investment much more high risk - if something serious goes wrong with trading, a highly indebted company immediately has its back against the wall, may breach banking covenants, and end up either going bust or having to do an emergency fundraising at the worst possible time & price, leading to heavy dilution. These are the reasons why I try to avoid highly indebted companies.

This morning's trading update sounds good. The key sentence says;

The Group will announce its full year results on Friday 19 September 2014 and these are expected to be in line with market expectations.

Jolly good. Lots more detail is given, but I'm not interested in that. All that matters now is the outlook statement. This is woolly, but positive-sounding;

The Board is encouraged by the recent improvement in like-for-like sales performance, the continuing potential for further acquisitions and the general progress in all divisions of the…

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bsharman

21st Jul '14

Last night I watched an excellent film about the transition from the trading floor to computer trading at the Chicago exchange. The film is called Floored and is available on youtube. I thought I would tell people about it on here as it's a fascinating watch, with lots of interesting characters!

Boltonreddave

Paul,
Although also a retailer, you could say that Pets at Home (LON:PETS) is also a listed veterinary chain.

Dave

nevilleaustin

Good morning Paul, I think my neighbour will fix the CVS Balance Sheet on her own. She has a dozen eventing ponies, and I see the CVS van most days visiting her stables! You are right, people are generally spending more on their pets, my Mother recently paid a £1,200 bill and a friend paid a £1,800 bill both on their cats!
With best wishes

Paul Scott

Hi Dave,

Isn't Pets at Home (LON:PETS) more of a retail chain, focussed on pets, rather than a veterinary practice like CVS (LON:CVSG) ? Or at least retail is the main activity of PETS I think.

Regards, Paul.

Northeastofeden

boltonreddave is right. PETS are outfitting stores with 'services' including vets practices and grooming. They have own vets.co.uk under vets4pets brand and now claim in rns to be largest small animal vets in uk. It's a bit like the talk of putting GPs and banks in supermarkets they are aiming for onestop solution.

Delpher

Hi Paul
Sounds like nit picking but just for the record I think that in the past you have said that you receive commission from WHI for recommending their services. I think you also recommended a couple of dealers can you give us their contact details?

MacroVal

PETS know that they'll never compete on cat food

Whole growth story is based on internet delivery (UK and beyond) and vet services

From their results headline "A strong year, now the UK's biggest pet and vet business"

Reading expansion figures, clearly after that end of the market

MV

colinhow

Hi Paul

Love SCVR - first port of call in the morning. Keep up the good work.

Any chance of your views on DIA half year report please?

(http://www.dialight.com/Assets/InvestorRelations/FinancialInfo/FinancialReports/PDF/HalfYearlyResults2014_210714021329.pdf)

Thank you in any case :)

Colin

Hi Delpher,

If I make a specific personal introduction of a new client to WHI then they have paid me a commission, yes.
But there's nothing to stop you going direct to them if you want to, and then that's nothing to do with me.

I've never recommended WHI in my reports here, but just mention that I use them as my main broker, as it's relevant to my opinion on WH Ireland (LON:WHI) shares, which might be inadvertently biased (as a happy customer). Although hopefully I've been objective in my reporting on their figures today and previously.

There are other small cap brokers that I've used in the past which are very good too - e.g. Hargreave Hale are excellent on execution, but may not be everybody's cup of tea in terms of how they treat clients - e.g. can be very abrupt & difficult on the phone. They're also inflexible - don't bother asking them for a favour on anything!

Also I've used very small brokers too. You're then a medium sized fish, in a small pond, especially if you trade frequently, so you tend to get very good service, if the broker is any good. It's all about finding a good broker, and building a personal relationship with the individuals there. I'm happy using WHI, but there are plenty of other brokers out there.

The key point is that the harder you screw down any broker on commissions, then the less important you become as a client. Also if you only trade occasionally, then they don't really want your business. Brokers want big accounts, and people who trade frequently, and people who value good service & don't scrimp too much on fees. So it pays to give them a level of commissions which gets you the service you want & need in small caps.

Fangorn

Which "Small" brokers have you used out of interest PP

Chaars

Small Cap Value Report (21 Jul 2014) - CVSG, MBH, WHI

CVS (LON:CVSG)

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Paul Scott

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