What a probe into the veterinary sector means for the UK’s top dogs Pets At Home and CVS
Top dogs in the UK veterinary sector were under pressure today after the competition watchdog said it would investigate why pet owners are not getting value for money.
Shares in both CVS Group and Pets At Home, two of the biggest animal care groups trading on the London market plummeted as news of the crackdown gave investors the jitters.
CVS Group saw its shares drop by over 20 per cent today, while Pets At Home, which has a large retail business as well as veterinary, fell by eight per cent.
CVS, which is one of the largest pet services in the UK, said it has engaged “constructively” with the watchdog and has tried to remedy some of the issues it flagged.
They said: “As the announcement today cites, CVS, along with certain other corporate groups who together own around 50 per cent of First Opinion Practices (“FOPs”) in the UK, has already engaged constructively with the CMA and put forward a package of possible remedies to address its concerns.”
“CVS continues to believe this package could be adopted across the market and could address the CMA’s concerns more quickly than an 18-month investigation.”
Pets at Home, which owns 450 clinics across its Vets4Pets and Companion Care brands, said it was “incredibly disappointed” with the investigation.
“The CMA’s findings 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.”
It continued: “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 Competition and Markets Authority (CMA) flagged several issues following its initial review last September.
The review, which prompted over 56,000 responses from the public and vet industry, raised concerns about how animal care clinics are being run throughout the UK.
This included fears that owners are being overcharged for medicines and how a rise in larger groups taking over smaller practices may reduce competition in the market.
In 2013, around 10 per cent of vet practices belonged to large groups, but that share is now almost 60 per cent.
The CMA said this morning: “Many of the large groups have expressed an intention to continue expanding their business through acquisition of independently owned practices.”
“This may reduce the number of business models in locations where most or all of the first opinion practices are owned by one large corporate group, giving less choice to consumers because they tend to choose practices close to home.”
Other concerns raised by the watchdog included consumers not being given enough information to enable them to choose the best veterinary practice or the proper treatment for their needs.
Russ Mould, investment director at AJ Bell, said if the CMA finds the industry guilty of poor pricing and disclosure practices, “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.”
He added: “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.”
According to the most recent figures from the ONS, Brits collectively spent over nine million pounds on care for their animals in 2022. This is up 182 per cent from the beginning of the survey period in 2005.
Not all of this was on veterinary services. A large chunk was on products for pets, where Pets at Home has historically been a leader.
This should protect the company from the worst of the fallout, noted analysts at Liberum: “As a general view, we see PETS as relatively well positioned in light of the CMA’s five potential concerns.”
The group’s veterinary business “operating profit contributed 37% to the group in 2023.”
Moreover, the group’s “vets practices are run as joint ventures, where the qualified vet partners have ‘clinical freedom’ over the decisions as to how the practice is run.”
Liberum added: “The practices are run under the Vets for Pets or Companion Care brand names, so it’s clear they are part of the wider group. The group does not run specialist referral centres, having sold its specialist hospitals in 2021.”
CVS is more exposed to the changes, the analysts noted: “CVS generates 87% of its EBITDA from Veterinary Practices so it would have an impact it is was forced to dispose of non-veterinary practice activities.”
The analyst note added: “This is probably the largest risk to CVS in the statement – like most veterinary groups, CVS does make a significant proportion of profit from the sale of prescription medicines.”