Last week investor Kelso Group Holdings announced to the stock market its latest investment in CVS Group, a £1bn market cap veterinary business which is its 8th investment.
We purchased 130,000 shares in the leading integrated veterinary service provider at an average price of 1387p and by the end of business of Friday, they stood at 1404p.
Before that we invested in the over-50s group Saga and saw a near 45 per cent rise in our investment in the first six weeks.
The other day I was asked this question: ‘Where do your ideas come from?’
Kelso sees 40% spike in Saga investment in less than a month
The truth is they do not come from data screening but rather listening to clever friends in the market for good ideas.
I spend three quarters of my week seeing contacts in the City that I have made over 30 years. They’re either all investors or advisers. Kelso takes all ideas back to the ranch and begins analysing.
And it’s not just me doing it. Our non-executive chairman Sir Nigel Knowles; chief investment officer Jamie Brooke (who had a career as a fund manager formerly with Gartmore, Hendersons and Lombard Odier); and the rest of the team do the same.
Let me explain our approach. In Saga, after some pretty deep analysis, partially helped by ChatGPT, I became the London equity market expert on everything about cruise liners.
It is amazing the detail you can find publicly and how much ChatGPT can help deepen one’s knowledge to improve investment decisions.
We don’t blindly trust ChatGPT but it is a highly effective way to speed up and deepen analysis, especially when coupled with many years of investment experience.
Kelso had a great start to 2026 with a near 45 per return on that Saga investment in the last six weeks on a £500m value stock that had already had a decent bounce.
Saga’s results will be in mid-April when I think there is a chance that they will bring forward their big headline aspiration of £100m profit before tax (PBT) and sub 2x leverage by 12 months to January 2029.
With two trained accountants at the helm there is a decent chance of another upgrade.
The narrative in their finals supporting the trading statement from weeks ago should be eye-catching and I believe the shares will kick on again.
They can also refinance out of their expensive debt to more mainstream cheaper debt after June this year, which could lead to a £10m upgrade in itself.
As part of our suggestions to management, one was to meet some US funds as their competitors in the US are much more (over two times) highly rated.
We have tried to introduce them to some US funds ourselves. Kelso is more than just an investor.
Following our investment in CVS Group, we are not becoming a pure mid-cap specialist. However, if we see clear value in more liquid situations we will take it.
Our investments range in companies with market caps from £20m to £1bn, averaging £400m.
As Kelso matures, I think we will finesse the strategy of say 1/3rd of the portfolio being in more liquid situations; 1/3rd being at the smaller end which have bigger multiples (which we are in the process of trying to prove) and 1/3rd in between.
So why did we invest in CVS Group?
- 1. They’re one of the UK’s leading vet businesses with just under 10 per cent market share and they’re also growing in Australia;
- 2. CVS has an incredible 20-year track record. They floated in 2007 with revenue and EDITDA that has consistently increased, never going down in any year since float; and
- 3. CVS is likely to join the FTSE 250 index in March as it moved to main market in January 2026.
You would think from point 1 that such a market super star would be cruising into the mid cap on a 10-year valuation high … but no, the total opposite.
CVS sits on a valuation multiple that is its lowest in ten years. Why? The answer is because the AIM IHT(Inheritance Tax) funds, which are very sizeable, have had to sell the stock before it goes main market.
Due to this, the stock fell 20 per cent on the news of its move to the main market in October last year. The £20m buy back CVS executed as part of this move would not have touched the sides compared to the weight of selling.
There was a timing gap. Mid cap funds were not yet ready to invest hence sellers outweighed buyers. A ‘V shape’ was formed in the share price chart in the last six months and an opportunity for savvy investors was presented.
CVS has a 20-year unbroken track record of revenue and EBITDA growth so we thought it was worth checking how many other market stocks can claim such a crown and how are they valued. The answer was three!
No surprise as to the names: Games Workshop, Halma and Diploma, which are on average valued at around 30x Price-to-Earnings (PE) and 20x EV/EBITDA.
CVS is on near half the rating of these three long-term super compounders.
CVS trades on a 16x PE and 8x EV/EBITDA having averaged 14x EV/EBITDA in the last 20 years with several periods averaging over 20x.
Solid consistent long-term growth is nirvana for a mid cap fund and I think many of them will want to own this, alongside six per cent index buying that is around the corner in March.
Speaking from personal experience, my black Labrador Frank (the Tank) passed a year ago.
Frank’s last months were very expensive and I’m not sure I ever asked my vet in front of my wife how much any treatments would cost before we agreed to go ahead – which we always did.
However, consider this. During the two Covid years, the number of dogs in the UK increased in number by 13 per cent to 11m and CVS’s revenue spiked.
These same dogs will continue to need care in the future, which will create a medium term positive theme to investing in CVS and create a long runway.
Kelso believes that CVS is under-geared relative to the quality of its earnings – hence we believe that the company should alongside dividends and acquisitions consider smaller more regular buy backs whilst the shares remain undervalued.
It is a form of capital allocation, a good investment decision at these prices, a strategy now being actively pursued by more than half of the FTSE250 which in itself tells you how undervalued the UK market is.
Our feedback on the management is that they’re high quality and one independent analyst commented they are a ‘dream to deal with’.
Let’s see if CVS can step up to the FTSE 250 in style. I think it will.