Top UK Stocks: CVS shares pop to new highs as growth accelerates
Joshua Warner September 23, 2021 9:00 AM
CVS goes from strength-to-strength as pet ownership rises, DFS scrambles to meet the boom in demand for furniture, Civitas Social Housing fights back against a short seller, Royal Mail’s profits are set to soar despite challenges, and Playtech returns to profit.
Top News: CVS Group restarts payouts as pet ownership rises
CVS Group restarted dividend payouts this morning as it posted strong sales growth over its recently-ended financial year, stating that growth has accelerated and margins have improved since the start of the new year.
CVS shares were up 7.7% in early trade this morning, sending the stock to a new all-time high.
The company, which provides veterinary services across the UK, said revenue rose over 19% during the year to the end of June to £510.1 million from £427.8 million, with like-for-like sales growth accelerating to 17.4% from just 0.7% the year before when the pandemic weighed on its practices.
That, twinned with better margins of 19.1% versus 16.6% last year, led to a 37.2% increase in adjusted Ebitda to £97.5 million.
CVS Group said it experienced topline growth across all areas of the business while margins benefited from its effective management of costs, and noted that it had continued to deliver strong organic growth even as new acquisitions boost its performance.
‘We continue to expand and develop our business, and, alongside our ongoing investments in high quality facilities and practices, we have welcomed a number of new vets and nurses to the group, as demand for veterinary services continues to increase in light of rising pet ownership,’ said CEO Richard Fairman.
Adjusted pretax profit surged 73% higher to £66.2 million while reported pretax profit at the bottom-line rose to £33.1 million from just £9.9 million.
CVS Group reinstated its progressive dividend policy this morning with a final dividend of 6.5p.
CVS Group said sales growth had maintained momentum in the new financial year, growing 17.5% in the two months to the end of August, with like-for-likes up 14.4%. This acceleration was down to price increases introduced in July combined with the fact it decided to delay introducing price hikes the year before. Adjusted Ebitda margins have also improved further to 19.5%.
The company also highlighted the strong performance of its preventative membership programme named the Healthy Pet Club. There were 455,000 members at the end of August, up 7.9% from the year before.
‘We see a number of opportunities to grow the business, through favourable consumer trends, further improving our specialist offering and by continuing to make investment in support. Although management expectations for the full year are not based on attaining annual growth at the high levels of the first two months, 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,’ said Fairman.
Where next for the CVS Group share price?
The CVS share price has been trending higher since early October later year. The share price has been trading within an ascending channel since late March and has hit an all-time high of 2700p.
The share price trades above its 50 & 100 sma whilst the bullish MACD is keeping buyers optimistic of further gains.
A potential area of resistance could be 2750p the upper band of the rising channel.
It would take a move below 2400p the lower band of the channel, the 50 sma and the weekly low to negate the near-term uptrend and for sellers to gain traction. This could be a tough a nut to crack.
DFS Furniture scrambles to meet explosion in demand
DFS Furniture said its biggest challenge is meeting the surge in customer demand amid inflationary and logistical pressures that are plaguing the economy as it returned to profit in its recently-ended financial year and reinstated its dividend.
The furniture firm said revenue in the year to the end of June soared over 47% to £1.06 billion. Notably, it booked 35.3% of its sales online, excluding its Sofa Workshop unit, compared to just 18.6% last year and 17% before the pandemic.
DFS revealed it turned to a pretax profit of £99.2 million in the year from the £81.2 million loss booked during the challenging year before. Notably, that was also well head of the £43.6 million profit booked before the pandemic in 2019.
The company said it has reinstated its dividend with a final payout worth 7.5 pence per share.
Importantly, DFS has seen orders grow at a significantly faster pace than revenue as it tries to cope with the influx of pent-up demand and a shift in consumer spending to the home. DFS said demand has remained strong since the start of the new financial year and that its order book is now ‘very significantly ahead of normal levels’, but warned the biggest challenge is being able to meet this demand.
‘The constraining factor on our reported short-term financial performance will be our pace of conversion of the order bank, which depends on both our supplier partner manufacturing capacity and also the capacity of our proprietary logistics operations. We believe the group is well placed to achieve the medium scenario of our range of FY22 profit outcomes identified back in June,’ DFS warned.
‘We already have increased output capacity significantly in FY21. We continue to strengthen our operations, increasing warehouse capacity and resourcing levels, to meet customer demand. Notwithstanding this, it should be recognised that the short-term operational environment continues to be exceptionally uncertain and difficult, given well-reported logistics disruption, cost inflation pressures and unplanned Covid absences,’ the company warned.
DFS shares initially gained as much as 3.6% in early trade this morning before waning, trading up 1.3% at 269.0p.
Civitas Social Housing denies claims by short seller
Civitas Social Housing has said a recent letter published by a short seller betting against the company is ‘based on factual inaccuracies, incorrect assumptions, erroneous comments and assertions which are not grounded in fact.’
The company said it is working on writing-up a full response to the letter and that ‘it has great confidence in the company's assets, revenues, business model and strategy.’
Civitas did not name the short seller but the news release comes after Shadowfall published an open letter to the board yesterday. Shadowfall has a short position equal to 0.82% of outstanding Civitas shares.
Shadowfall said its short position is underpinned by three points. The first is what it alleges to be a lack of transparency from the board about transactions with entities where it alleges some Civitas directors have some form of economic interest. The second is the accuracy about claims around the ‘100% government funded framework’ that Civitas boasts, and the third is the viability of its rental income and the threat it could pose to its net asset value.
‘Some may take the view that Civitas is a force for good within the supported housing sector and carries with it strong ESG credentials. However, we believe that the issues we have identified in this letter and its enclosure below store up significant risk, not only to Civitas’ shareholders but also carry systemic risk to other stakeholders within the sector,’ said Shawdowfall.
Civitas is a Real Estate Investment Trust that provides pure-play exposure to the social housing market. Today, the company boasts the largest portfolio of its kind with over 600 properties housing over 4,200 vulnerable people with learning disabilities, autism and mental health disorders across England and Wales. Rental income is derived from Civitas leasing out its property to approved providers of supported social housing with inflation-linked rent increases.
Shawdowfall claims that ‘at least 23% of Civitas’ annual rental income could be at risk’ due to flaws in its business model, including a dependency on a handful of providers for a large proportion of its income. Auckland, the largest single payer of rent to Civitas, became the latest provider to be told it was non-compliant by the regulator earlier this year, prompting concerns that considerable amounts of rent is coming from sub-par providers.
Civitas Social Housing shares were down 2.3% in early trade this morning at 93.7p, having lost over 22% since early August.
Royal Mail profits to soar despite higher costs and labour shortage
Royal Mail said it expects profits to soar higher in the first half of its financial year as demand for parcels remains strong after booming during the pandemic, but warned it was starting to see a rise in costs and challenges from the tight labour market.
The company said it is expecting to deliver an adjusted operating profit of £395 to £400 million in the first half, with at least £230 million of that coming from Royal Mail. That will be a marked improvement from the £129 million loss booked in the first half of the last financial year and ahead of the £75 million profit delivered in 2019 before the pandemic hit.
That came as Royal Mail revealed revenue in the five months to the end of August was up 8.2% to £5.12 billion from £4.73 billion the year before. There has been a marked slowdown in growth compared to last year when demand for parcels exploded during lockdown, but revenue was still 17.7% above pre-pandemic levels in the period.
Notably, the recovery in letter volumes was the primary driver of growth in the period. Revenue from letters was up over 18% in the period after demand collapsed last year – but was still 7.3% below pre-pandemic levels.
Meanwhile, parcel revenue was up just 0.1% in the period as it comes up against tough comparatives. Notably, parcel revenue rose despite significant falls in volumes, reflecting a rise in prices.
Its international delivery arm GLS saw revenue rise 9.3% year-on-year and has continued to go from strength-to-strength, with sales still operating some 30.5% higher than before the pandemic. Royal Mail noted it is facing significant cost pressure in the unit but reaffirmed GLS should deliver low single-digit percentage growth over the full year with an operating margin of around 8%.
The company said Royal Mail’s margins were in-line with expectations despite a rise in costs and that GLS should be able to absorb any increase in costs caused by the tight labour market.
‘In Royal Mail, we are increasingly confident that domestic parcels are re-basing at a significantly higher level than pre-COVID and believe we are maintaining our share of the market. Domestic parcel volumes are up around a third compared to pre-COVID. Domestic parcels performance continues to be more robust against ongoing challenges in international,’ said chairman Keith Williams.
‘Whilst we continue to expect further normalisation of parcel performance as we unwind from the pandemic and anticipate some upward pressure on costs, both adjusted operating profit and margin are expected to be higher in H2 compared to H1,’ he added.
Royal Mail shares were down 0.3% this morning at 480.6p.
Playtech returns to profit
Playtech said it remains confident about the remainder of the year despite the uncertainty being caused by the pandemic as it revealed it bounced back to profit in the first half.
The company, which is the largest online gaming software provider in the world, said revenue was down 4% in the six months to the end of June to EUR457.4 million from EUR476.7 million. Playtech said its strength online helped counter the impact of longer-than-expected retail closures in Italy and also flagged a ‘very strong performance’ from B2B online.
It also said that the Americas is now the biggest growth driver for the business with revenue from the region more than doubling.
Adjusted Ebitda was up 13% to EUR124.1 million and Playtech turned to a reported post-tax profit at the bottom-line of EUR54.6 million after booking a EUR22.1 million loss last year. Profits were boosted by a EUR299.9 million unrealised gain following the valuation of its options to expand in Latin America.
‘Significant progress in the US saw Playtech launch for the first time in Michigan, the first step in our long-term multi-state partnership with Parx Casino, and regulatory approvals progressed in key strategic states. Structured agreements continue to deliver in Latin America, with strong growth in H1 in Mexico and Colombia and launches in Panama and Costa Rica. In Europe, we signed a major new software and services agreement with Holland Casino and saw continued growth across a number of existing licensees,’ said CEO Mor Weizer.
‘Snaitech continued to outperform in Italy, cementing its position as the number one retail and online sports betting brand in Italy. The pandemic has structurally grown the higher margin online business and we expect this growth to continue,’ he added.
Playtech said it has made a ‘strong start’ to the second half and said both the B2C and B2B businesses should continue to deliver, although flagged that uncertainty remains due to the threat of further lockdowns being introduced.
‘Looking forward, given the strong H1 performance, the momentum in the business and the easing of lockdown restrictions, we are confident of Playtech's prospects for the remainder of 2021 and beyond,’ said Weizer.
Playtech shares were up 0.7% in early trade at 451.4p.
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