CVS can claw back lost ground, RBC thinks

CVS Group's shares present an opportunity for investors, said RBC Capital Markets, if the veterinary services chain can demonstrate that it can overcome short term issues seen with recent acquisitions.

Shares in the AIM-listed group lost around 19% of their value since the start of August after a trading update revealed "lower than anticipated short-term performance of some acquisitions" on a like-for-like basis.

This share price "reset", the second in a year for CVS after hitting an all-time high last November before later that month admitting LFL growth had been slower than previous periods, "represents an opportunity to us", said RBC, upgrading its rating to 'outperform' from 'sector perform'.

Analysts at the investment bank cut their earnings per share forecasts for the current year 5.3% but upped estimates for 2019 and 2020 by more than 3%.

"The underperformance of recent acquisitions (52 made in FY18) is something of a surprise, given the company has an extensive track record in making acquisitions since IPO (over 450) but we think these issues will remain short term in nature," the analysts wrote.

Consensus forecasts are "now at a more realistic level" and incorporating higher operational costs, so RBC thinks forecast volatility "should reduce the bar for future acquisitions".

The target price was cut to 1,190p from 1,230p.