CVS Group Upgraded by Barclays on Strong Australian Growth Outlook

Barclays has upgraded UK-based CVS Group to "overweight" from "equal weight," citing a more confident outlook on the veterinary chain's expansion in Australia. The investment bank also raised its price target on the company's shares by 18% to 1,630 pence, which prompted a 2% rise in the stock price on Friday.

Australian Expansion Drives Upgrade

The upgrade follows new disclosures from CVS management that have addressed Barclays' previous uncertainties about the scale and profitability of the company's Australian operations. According to the bank's note, CVS is generating returns of 14% to 17% on its Australian acquisitions, significantly above its internal 12% hurdle rate.

CVS management has also outlined an ambitious earnings target for its Australian unit, aiming for an EBITDA of £105 million to £135 million in the long term, a substantial increase from its current scale. Barclays noted that acquisition economics have improved, with recent deals completed at approximately six times EBITDA compared to eight times historically, as CVS establishes its market presence.

UK Pricing and Market Outlook

Beyond Australia, Barclays highlighted improving conditions in the company's domestic market. Following the resolution of a UK Competition and Markets Authority (CMA) investigation, CVS has a clearer path to implement price increases. The company has already rolled out larger price hikes this summer than in the prior three years, a move Barclays noted is being mirrored across the industry.

Looking ahead, Barclays identified a potential for approximately 230 additional sites in Australia, representing a further £90 million in EBITDA opportunity. The bank sees a favorable competitive environment, with key rivals focused on other regions, supporting CVS's continued expansion.

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Analyst Forecasts and Risks

Barclays' updated financial model forecasts CVS Group's revenue growing from £713 million in fiscal 2026 to £789 million in fiscal 2028, with adjusted EBITDA margins remaining stable near 20%. Equity free cash flow is projected to more than double from £29 million to £69 million over the same period.

However, the bank also cited potential risks to its outlook, including:

• A slower-than-expected pace of acquisitions in Australia.
• Integration complexity as the business scales.
• Structurally subdued like-for-like growth in the UK market.
• Uncertainty related to the company's chief executive succession.

CVS Group is scheduled to report its fiscal 2026 results on September 24.