- CMA identifies ‘multiple’ market concerns
- Initial review drew ‘unprecedented’ public response
- CVS and Pets at Home shares under pressure
Shares in deal-hungry veterinary services group CVS (CVSG:AIM) and UK pet care leader Pets at Home (PETS) came under selling pressure on Tuesday after the Competition and Markets Authority (CMA) launched a formal investigation into the veterinary sector.
While pet owners are happy to splash the cash on their beloved furry friends, the competition watchdog is worried that they’re paying far too much for medicines or prescriptions.
The implication of the probe is veterinarians have been exploiting customers, either through overcharging or not giving enough information so customers can choose from a range of treatments priced at different levels.
The watchdog also implied that some vet practices are too dominant in parts of the country, which is hurting competition.
WHAT DID THE CMA SAY?
The CMA said its initial review of the sector, announced in September, highlighted ‘multiple concerns’ in the market, including concerns over the lack of information available to customers, actions by large corporate groups to reduce choice and fears pet owners might be overcharged.
‘The regulatory framework is outdated and may no longer be fit for purpose,’ warned the watchdog. CEO Sarah Cardell stressed the initial review had drawn an ‘unprecedented response’ from the public and veterinary professionals alike, demonstrating that the ‘strength of feeling on this issue is high.
Our review has identified multiple concerns with the market that we think should be investigated further,’ added Cardell.
HOW DID THE COMPANIES RESPOND?
Acquisitive CVS, whose shares fell 20% to a two-year low of £11.80 on the news, reminded investors it has engaged ‘constructively and proactively’ with the CMA throughout its review.
The company explained that along with certain other corporate groups who together own around 50% of the UK’s first opinion practices, it has put forward a package of possible remedies to address the CMA’s concerns.
CVS believes this package ‘could be adopted across the market and could address the CMA’s concerns more quickly than an 18-month investigation’, though it pledged to work ‘proactively’ with the watchdog as the consultation progresses.
Shares in Pets at Home, whose unique joint venture veterinary model means practice owners have control of their practices, softened 2.6% to 268p as investors digested the implications of the formal review, which comes at a time of rising competition on the retail side of the business from Pets at Home’s smaller rival Jollyes.
A spokesperson for Pets at Home said the FTSE 250 company is ‘incredibly disappointed the CMA’s findings today do not fully reflect our unique business model of locally-owned vet practices.
‘Whilst our brand is national, our veterinary practices are led by individual entrepreneurial vets who have clinical and operational freedom. They choose all pricing, products and services to ensure the best care for clients and their much-loved pets in their local area, which promotes competition in the market and helps to keep prices low.’
The spokesperson added: ‘We have been working closely with the CMA on their areas of concern and will continue to do so as their inquiry progresses to ensure the distinctiveness of our model is fully recognised.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, commented: ‘The biggest vet group on the UK stock market is CVS and understandably its share price has crashed on the news that the watchdog is stepping up its probe. Pets at Home is also exposed, though its vet practices are only one part of a broader group which includes selling pet food and accessories.’
Mould explained that the vet industry has been struggling with a lack of qualified workers, which has led to existing staff having to work longer hours, the recruitment of more staff from overseas or locums which has pushed up costs, or fewer appointments which has impacted takings for certain vet centres.
‘This shake-up in the sector might have led some vets to push hard on prices to make up for any disruption to how their practices are run,’ noted Mould.
‘If the CMA finds the industry guilty of poor practices around pricing and disclosure, vet companies face a significant downgrade to earnings forecasts. Worst case scenario, it might even render some smaller vet practices as far less economical and potentially lead to closures.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
