- CVS Group
- 17 March 2025 09:53:39
Source: Sharecast
"Our analysis of practice margins in Australia highlights their accretive nature, which we think is not well understood by investors," it said. "Additionally, we are now close to gaining clarity on potential CMA investigation outcomes, which could stimulate buying interest in light of continued compressed multiples."
RBC said that although consensus needs to update its non-operating cost assumptions, and despite a tough consumer environment, it believes that greater confidence around the CMA will enable investors to price in the strong industry fundamentals and the high Australia practice margins.
RBC noted that Australia margins were very strong, even before synergies. It said EBITDA margins in the 2024 and H1 2025 cohort of acquisitions are over 30%, versus a UK margin it estimates to be around 19%.
"Additionally, the company is seeing opportunities to drive cost synergies from greater purchasing power earlier than expected," it said. "This could add a few more percentage points to Australia margins over the next few years, driving group revenues and margins comfortably ahead of consensus."
Additionally, the bank said the EBITDA multiple paid by CVS is in the low-7s, implying substantial return on capital employed even before delivery of these synergies.
RBC pointed out that the CMA is due to publish more working papers in Spring that will include one on possible remedies.
"This will be the first insight into how the CMA is thinking about concluding its investigation. The provisional decision report will be published in May-June, and the final report is due Sep-Oct," it said.
At 0950 GMT, the shares were up 11% at 1,079.50p.