Veterinary business CVS Group saw sales struggle for momentum in the second half of 2024 as the pet sector continues to lag its pandemic era strength.
CVS revenues jumped over 6 per cent to £341.8million in the six months to 31 December, the group said on Thursday.
But like-for-like sales were 1.1 per cent lower compared to the first half of 2024, as previously guided, having been hit by a ‘continuation of softer market conditions in the UK most notably in the Group’s online retail and laboratory businesses’.
The company saw its pre-tax profit fall in the period amid increased finance expenses and depreciation costs.
Reported profit before tax on continuing operations fell 35.1 per cent to £17.4million.
CVS has been actively expanding in Australia, completing several acquisitions and identifying synergies to enhance returns.
This week market chatter suggested that a European private equity firm may look at taking over Pets at Home.
Half-year results: CVS Group saw its revenue jump over 6% to £341.8m in the six months to 31 December
It has been claimed that the potential bidder could be based in Europe and have a similar business to FTSE 250-listed Pets at Home in the US.
But Pets at Home did not comment on the speculation on Thursday.
David Hughes, equity analyst at Shore Capital, said this suggests ‘that no formal approach has happened’.
He added: ‘The veterinary sector has been under review from the CMA, however recent comments suggest a softening of the regulators stance here, perhaps fuelling any M&A rumours in the sector.’
CVS Group shares fell 2.41 per cent or 25.50p to 1,032.50p, having fallen over 37 per cent in the last year.
Pets at Home shares were down 1.05 per cent or 2.60p to 245.60p on Wednesday, having fallen over 13 per cent in the last year.
Looking ahead, CVS highlighted ‘headwinds in the UK and employment cost increases resulting from the UK Autumn Budget’, but said ‘the fundamental need for high-quality veterinary care remains strong’.
Derren Nathan, head of equity research at Hargreaves Lansdown, said: ‘Veterinary services provider CVS Group’s first half trading had little to set tails wagging with like-for-like sales still in negative territory.’
The UK’s Competition and Markets Authority has been probing the veterinary sector amid concerns pet owners are being overcharged.
Vet groups could be forced to cap prescription fees, sell off parts of their business or give mandatory information to pet owners if the probe finds it necessary.
It follows warnings in March 2024 about weak market competition, partly caused by rapid sector consolidation.
Nathan said: ‘There was no reference to any potential remedies today, only continuing uncertainty, which is driving a much more selective approach to acquisitions in the UK.
‘The focus for consolidation remains on Australia where eight practice sites have been acquired so far this year with £23million paid up front.’
He added: ‘It’s inorganic growth that’s powering the modest additions seen to the Group’s top and bottom line so far this year and if hopes for an improved second half in the UK can be achieved the overall picture could improve substantially.
‘Despite a recent recovery, the earnings-based valuation is still around half the long-run average, which could offer investors an opportunity to gain exposure to a high-quality business with attractive long-term growth drivers.
‘The CMA enquiry remains a risk but could also prove to be a catalyst if price controls aren’t part of the recommendations.’
In May 2024, the Competition and Markets Authority confirmed its decision to launch a market investigation into veterinary services. In July, the CMA published an issues statement which set out the scope of the investigation and the areas being explored.
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