Deutsche Bank raises CVS Group stock price target to GBP15.00

Deutsche Bank raised its price target for CVS Group Plc to £15.00 from £14.00, reiterating a Buy rating, after the company sold its Crematoria division for £42.4 million to address CMA concerns. The sale, at 10x EBITDA, enables reinvestment in Australian acquisitions at a lower 7x EBITDA multiple, reducing investor focus on leverage; pre-sale leverage was 1.7x EBITDA against a 2x target. While Deutsche Bank lowered its FY25 EBITDA estimate to £134.3 million, improved cash flow and decreased leverage, coupled with potential UK trading improvements and favorable CMA outcomes, could drive further stock re-rating.

Analysis

Deutsche Bank has increased its price target for CVS Group Plc. to £15.00 from £14.00, maintaining a Buy rating, following the company's strategic divestiture of its Crematoria division for £42.4 million. This sale, executed at a 10x EBITDA multiple, addresses concerns raised by the Competition and Markets Authority (CMA) and allows CVS Group to reinvest the proceeds into Australian acquisitions at a more favorable valuation of approximately 7x EBITDA. The transaction is expected to reduce investor scrutiny on the company's leverage, which was 1.7x EBITDA pre-sale compared to a 2x target, and is projected to improve cash flow. Despite Deutsche Bank lowering its fiscal year 2025 EBITDA forecast for CVS Group to £134.3 million from £138.5 million and anticipating a mid-single-digit cut to adjusted earnings per share for continuing operations due to the divestiture, the bank views the overall financial impact positively due to enhanced capital allocation and reduced leverage. CVS Group's shares have already appreciated by 50% year-to-date, and at a current valuation of around 8x enterprise value to EBITDA, Deutsche Bank suggests that improvements in UK trading, ongoing accretive M&A in Australia, and a potentially favorable CMA outcome could further support the stock's re-rating.

Key Decisions for Investors

• Investors should view the Crematoria division sale as a positive strategic move that enhances capital allocation towards higher-growth Australian assets at attractive multiples and improves CVS Group's balance sheet by reducing leverage.
• Despite the near-term adjustment to EBITDA and EPS forecasts resulting from the divestiture, the anticipated improvement in cash flow, lower leverage, and the stock's significant 50% year-to-date appreciation at an approximate 8x EV/EBITDA valuation underpin Deutsche Bank's continued Buy rating and increased price target.
• Key factors to monitor for potential further stock re-rating include the operational performance of the UK business, the successful integration and performance of Australian acquisitions, and the ultimate resolution of the Competition and Markets Authority's review concerning related services.