12th Mar 2024 13:15
(Alliance News) - A planned investigation into veterinary practices looks set to be troublesome for the sector, after an initial review from the UK Competition & Markets Authority highlighted "multiple concerns".
The implication of the review, AJ Bell's Russ Mould explained, is that pet parents have been paying "far too much" for medicines or prescriptions, in part thanks to a lack of transparency over pricing.
As a result, the UK CMA is now launching a formal investigation into the veterinary sector, focused on its provisional findings.
A market investigation enables the CMA to investigate its concerns in full and to intervene directly in markets if it finds that competition is not working well, the regulator explained.
Some of the issues that the watchdog identified included a lack of information available to customers, weak competition in certain areas, actions by large corporate groups to reduce choice, and fears pet owners might be overcharged.
As per Mould, some of these problems stem from "a lack of qualified workers", which has led to existing employees working longer hours, and a larger number of overseas and locum staff, thus pushing up costs.
According to UCAS figures from February last year, 2,370 students enrolled on to veterinary science degree programmes in the UK in 2022, down 11% from 2,660 the previous year.
Worse still, four of the nine institutions in the Veterinary Schools Council saw larger percentage drops than this. Enrolment was down 46% at the University of Bristol, and 39% at the University of Liverpool.
Fewer appointments have also impacted takings for some centres.
The need to have staff on site for longer, and to hire workers from abroad, "might have led some vets to push hard on prices to make up for any disruption to how their practices are run," Mould suggested.
Following the announcement, CVS Group PLC saw its shares tumble 21% to 1,144.91 pence in London on Tuesday afternoon. It is the biggest vet group on the UK stock market.
Pets At Home Group PLC also saw its shares fall, though by a considerably smaller margin of 2.1% to 269.40p.
The latter fared better, Mould explained, because "its vet practices are only one part of a broader group which includes selling pet food and accessories".
For its part, Pets at Home said it would "continue to cooperate" with the CMA, although it was "disappointed" that the CMA had "[failed] to fully acknowledge the differences our differentiated model brings to our practice owners and consumers".
The company also defended its growth strategy, explaining that it was "pro-competitive", helping to introduce "new competition and consumer choice into the UK vet sector".
Liberum's Adam Tomlinson commented that the main risks to Pets at Home, which is not solely focused on veterinary services, are concerns around concentrated local competition.
The firm has a 10% share of the overall small animal vet market in the UK, which means that "on the face of it, forced disposals would seem less likely given the joint venture set up and "freedom" individual vets have", said Tomlinson.
However, while Pets is likely to experience a "period of uncertainty" as the CMA investigation continues, Liberum's 'hold' rating for the group is more a reflection of the slowdown in its retail performance, Tomlinson explained.
By contrast, the biggest concern for CVS Group is likely to be the impact of potential restrictions on the sale of prescription medicines.
Like most veterinary groups, Liberum's Seb Jantet explained, the firm "does make a significant proportion of profit from the sale of prescription medicines".
On Tuesday, CVS said that it, along with certain other corporate groups who together own around 50% of first opinion practices in the UK, has put forward a package of possible remedies to address the CMA's concerns.
It believes this package could be adopted across the market and could address the CMA's concerns more quickly than an 18-month investigation.
The UK CMA has not commented on this package, though vet groups are wise to consider the implications of a long investigation.
"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," warned AJ Bell's Mould.
By Holly Beveridge, Alliance News reporter
Comments and questions to [email protected]
Copyright 2024 Alliance News Ltd. All Rights Reserved.
Related Shares:
CVS GroupPets at home