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Animal health specialists fail to capitalise on demand

Animalcare, CVS and Pets at Home have all produced tepid trading updates despite the continued strength in the wider market
August 8, 2018

Animal healthcare is a market in its prime. Currently valued at approximately $40bn (£31.1bn) and set to grow at an estimated compound annual rate of 5.5 per cent out to 2025, according to data from consultancy Grand View Research, there is plenty of money to be made for companies that know how to capitalise on the trends. But that is easier said than done. The market, though growing rapidly, is highly fragmented and dominated by a small number of large players, which has made it hard for some of the smaller UK groups to gain momentum.

Animalcare (ANCR) is a case in point. After several years of steady, if unspectacular growth, management agreed to a reverse takeover by Belgium-based Ecuphar in 2017 to boost operations in Europe. Unimpressed investors have sent the share price down 55 per cent since then and it’s hard to blame them. Animalcare’s shareholders were significantly diluted by the deal and now own a smaller part of a company that is growing at a slower rate to what it was before. In the first six months of 2018, revenues were up 4.8 per cent at constant currencies – behind market growth.

What’s more, the group has now lost two chief executives in just over a year, both of whom were founders of the original two companies. It’s true, newly appointed Jenny Winter – who will take up the top job in October – has an impressive background in big pharma, but the rate of senior management churn doesn’t instil confidence.

CVS (CVSG) has also borne the brunt of an ambitious acquisition strategy. In the year to June 2018 the group bought 52 veterinary practices for £51m – the strong market has encouraged private surgery owners to bank gains and sell-up. But retaining staff has been tricky and CVS was forced to hike salaries in 2018, which has come at a cost to the bottom line. Investors sent the group’s highly-rated shares down a fifth on the day a trading update revealed some of the acquisitions had failed to hit expectations.

The impact of Pets at Home's (PETS) consolidation strategy will be revealed when the group announces half-year results in November. The group’s recent first-quarter trading update only contained top-line data, and although investors were pleased that the seven new vet practices and one new retail outlet boosted revenues, it is not yet clear how much this will feed through to the bottom-line. Last year, underlying pre-tax profits fell 12 per cent, despite a 6 per cent rise in like-for-like sales, following an extended squeeze in merchandise gross margins.