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A sting in the tail

Does CVS Group’s share price fall indicate the vets space has lost its shine, asks Ploy Radford

Most people on the planet are mad about animals. Social media users go wild over a cute puppy picture, and investors start salivating over a growing veterinary clinic platform. Or at least they have done, but could things be about to change?

The rising number of companion animals being bred and acquired, the human inability to say no to paying for the best care for their beloved pet, a changing vet workforce that wants to be salaried within a corporate organisation, and advances in animal care techniques have all contributed to the boom in investors hunting down a veterinary clinic platform. Independent Vetcare, for instance, was acquired by EQT last year for a staggering 19x ebitda, if reports are to be believed.  

But the fall in CVS Group’s share price following its latest round of results indicates that things are not looking so cute in the veterinary space. Speaking at the London-listed veterinary services provider’s AGM on the 30 November, chairman Richard Connell admitted that excluding the sales of its Animed Direct division (which sells animal medicines), like-for-like sales were up by just 1.5%. The board of CVS attributed the slowing in growth to the “greater general uncertainty widely evident in the UK economy and some shortage of clinicians in the UK”, with the latter exacerbated by the vote to leave the European Union, it said.

In other words, there actually is a limit to what people will pay for their pooches when economic headwinds are bitter, and there’s no point growing your number of assets if you can’t staff them – and there is a serious staffing problem in the UK.

As a result of Connell’s words, share price at the firm plummeted by 28.1% to 1,010 pence by the end of the day.

Connell said it intends to raise salaries by more than inflation as well as provide more flexible working arrangements to attract more veterinary surgeons and nurses. The salary increases will be funded through price increases, he added. No doubt, because like most veterinary consolidators they have splurged a lot of money on acquisitions (buying 21 new surgeries since the 1 July 2017 alone), as sellers can command punchy prices, they now can’t fund pay rises from their own reserves.

However, given that economic uncertainty has also put customers off, it is a little hard to see how raising prices will help. CVS might as well copy one of its canine customers and start chasing its own tail.

Investors who think the veterinary space promises an easy return would do well to rein in their acquisitive desires and keep a close eye on CVS’s share price.    


Posted on: 01/12/2017

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