The CMA is to consult with vet businesses over the remedies it is considering for the industry. These include measures to increase pricing transparency, increased awareness of online suppliers, improved competition in out of hours care, and price restrictions for cremations.
In terms of promoting competition in certain local areas there were no immediate proposals, but the CMA may review any future mergers. Stakeholders are invited to respond by 27th May 2025.
The shares were up 12.5% in early trading.
Our view
CVS Group’s investors have breathed a sigh of relief after the CMA’s initial proposals from its investigation into the UK veterinary industry don’t look too taxing. The potential for price controls appears to be focused on cremations - a part of the business the group has recently agreed to dispose of. While future UK acquisitions could still come under regulatory scrutiny, expansion plans have already shifted towards Australia.
Uncertainty surrounding the investigation has been flagged as a factor in weak UK trading, so there’s now a little extra pressure for CVS to deliver its promises of an improved second half performance. If it does so it should be on track to drive modest profit growth over 2025.
CVS is a one-stop shop for pet needs - the biggest business is its hundreds of vet clinics. But it also operates cremation services and an online pharmacy - Animed. There's a product or service available for pet owners at every stage of their pet's life.
The veterinary sector certainly has its attractions. People will spend on their furry companions, especially when it comes to health, no matter what's going on in the economy. The pandemic has seen pet ownership increase massively too.
And not only this, but the way we treat our animals is playing into the hands of vets. So-called humanisation of animals means we're more willing to part with cash on check-ups and treatments for every sniffle and tummy upset. Half a million of us are signed up to the Healthy Pet Club subscription service, which makes custom even stickier.
Acquisitions remain key, with the focus now firmly on Australia, where similarities with the UK market should allow smooth integration into the group. The acquisition spree has driven up debt levels. There’s still headroom for further deals, but to pick up the pace, CVS may need to consider financing options. So we’re not expecting huge growth in the dividend. No shareholder payouts can be guaranteed.
Despite a strong recovery so far this year, the current valuation is still well below the long-term average. We feel this represents an opportunity for investors to invest in a high-quality business with growth potential.
While the risks surrounding regulatory intervention look to have been reduced, it’s important to note that the CMA investigation is still not complete. That and the ongoing challenges to the UK economy mean there could be further ups and downs ahead.
Environmental, social and governance (ESG) risk
The healthcare industry is largely medium-risk in terms of ESG, with companies in Europe and the US trending toward the lower end of the spectrum due to more stringent regulations. Risk also varies by subindustry, with Pharmaceuticals categorised as medium/high risk due to higher exposure and weaker management. Across the board, product governance is the most acute risk, with business ethics, labour relations and data privacy also contributing. Providing reasonable access to healthcare as a basic service is also a growing issue, with greater concerns surrounding the social implications of for-profit healthcare companies.
According to Sustainalytics CVS Group’s management of ESG risks is average overall.
Issues of note include poor disclosures, resulting in substandard accountability to investors and the public. Whilst the CMA investigation remains underway we see business ethics as a key ESG risk to be mindful of. Given the group’s reliance on highly skilled veterinary practitioners, labour relations and with it talent retention and attraction are also an area to watch.
CVS Group key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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