Pharmaceutical giant GlaxoSmithKline has defensive, cash-generating credentials that I admire. But it’s not the only share I’d buy in the wider healthcare sector.
Today’s half-year results report from CVS (LSE: CVSG) contains decent growth figures. The company provides integrated veterinary services in the UK, and the directors describe the sector as having “considerable resilience.” But there have been problems. Just over a year ago, the company’s profits were on the floor.
After a strong recovery in the second half of the trading year to June 2019, today’s numbers mark a return to solid growth. Revenue rose by just over 15% compared to the equivalent period in the prior year, and adjusted earnings per share shot up by 30%. Within the revenue figure, like-for-like sales moved up by more than 8%, suggesting robust organic progress.
Expanding steadily
On top of that, CVS has been expanding via acquisitions. Five practice surgeries joined the company in the period as a result of three bolt-on takeovers. To put that expansion in perspective, the company has over 500 practices, more than 1,800 vets, and around 2,300 nurses.
Of course, the immediate future is uncertain because of the coronavirus pandemic. Since the lockdown in the UK, veterinary practices can only remain open for urgent and emergency care. The firm is handling non-urgent and non-emergency cases via “teleconsultation.”
The consequence of that is “a significant reduction” in both small animal billable visits and revenue. CVS has temporarily closed half its small animal practices, which represents around one-third of its capacity in that area of operations. Meanwhile, teleconsultations with clients for non-urgent or non-emergency cases are charged at “normal consultation rates.”
However, all the company’s referral hospitals, laboratories, and crematoria are staying open to provide essential patient care and for clinical waste collection. The company reckons around 40% of its small animal client base is in the Healthy Pet Club, which provides “some degree” of revenue visibility. Meanwhile, the online business is “fully operational” and is seeing “record levels” of food and medicine sales.
Trading through the crisis
I reckon CVS looks well-positioned to trade through the crisis even if revenues end up reducing. As such, the company seems to be luckier than firms in some sectors that have been closed down altogether.
Looking ahead, the directors acknowledge that the full effects of the pandemic remain unknown. However, they are “confident” that the firm is doing everything it can to protect its employees, maintain business operations, and preserve cash and income streams.
My guess is that CVS will prove to be a strong survivor of the crisis. And I’m inclined to view weakness in the share price now as an opportunity to buy the shares for the longer-term growth story. At 755p, the share price is around 37% lower than it was on 20 February.
