Cat ready for vet treatment
The CMA has launched a review into the veterinary services market / Image source: Adobe
  • Regulator to review £2 billion-plus market
  • Concerns consolidation has encouraged anti-competitive practices
  • Vets pure-play CVS particularly vulnerable

Shares in Pets at Home (PETS) plunged 10.5% to 339p after the Competition and Markets Authority (CMA) launched a review into the UK’s £2 billion-plus veterinary services market amid concerns over possible anti-competitive practices.

Also in the doghouse with investors was CVS (CVSG:AIM), the deal-hungry veterinary group whose shares slumped the best part of 30% to a two-year low of £14.86 on the news.

WHY IS THE CMA PROBING THE VET SECTOR?

The CMA’s review will explore how well the market is working for pet owners during a cost-of-living crisis and assess whether they are receiving the information they need at the right time when it comes to treatment options and prices.

Pet ownership and adoption has been rising since the pandemic after lockdowns and working from home drove demand for puppies and kittens.

Cats, dogs and other companion animals are increasingly being treated as members of the family. So when pets needs urgent treatment, owners may not shop around for the best deal as they do with other services.

In a statement, the CMA said it was important pet owners got value for money from their vets with households currently under strain, ‘but figures suggest the cost of vet services has risen faster than the rate of inflation, which is something the CMA will be looking into as part of its review’.

Sarah Cardell, chief executive of the CMA, said: ‘Caring for an ill pet can create real financial pressure, particularly alongside other cost of living concerns. It’s really important people get clear information and pricing to help them make the right choices.

‘There has been a lot of consolidation in the vet industry in recent years, so now is the right time to take a look at how the market is working.’

WHY THE REVIEW IS WORRYING INVESTORS

The pets and vet space has felt like a healthy place to be in recent years, but the CMA probe is potentially damaging for UK pet-care leader Pets at Home, which operates a small animal veterinary business with 445 vet practices located both in its stores and in standalone locations.

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However, retail is by far the bigger part of the business by revenue with the firm selling products ranging from food to toys and bedding from 458 stores.

The implications for veterinary services pure-play CVS look more negative, hence the harsh share-price reaction today.

The integrated vet services provider has around 500 veterinary practices, the bulk in the UK, although it has diversified through expansion into the Netherlands, the Republic of Ireland and latterly Australia.

In response to the CMA review, CVS says it has ‘always sought to ensure its prices are appropriate and reflect fair value to our clients. Our pricing structures are set by clinicians to ensure these align with our purpose.’

The company added: ‘As the CMA have recognised, there continues to be a significant shortage of vets in the UK and employment costs represent the most significant proportion of our cost base. Our pricing reflects this and other inflationary pressures experienced in recent years.’

THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, commented: ‘Britons love their animal companions and are willing to pay up to keep them healthy and happy.

‘News that the competition authorities are looking into the rising costs and potentially anti-competitive practices in the industry has set the cat among the pigeons when it comes to the share prices of CVS and Pets at Home.

‘The sell-off seen today could be an overreaction, although the CMA review looks to be wide-ranging. The problem for both businesses is the process is likely to be time-consuming and, with a further update not due until early 2024, it could weigh on both stocks for some time to come.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Ian Conway) own shares in AJ Bell.

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Issue Date: 07 Sep 2023