Analysts believe Thursday’s drop in the share price of Pets at Home Group PLC (LSE:PETS) in response to the CMA opening an investigation into the veterinary service industry was unjustified, claiming the group “is not the target”.
After the launch of the investigation into the operations of the vet industry, Pets at Home lost as much as 10% of its value on Thursday, but Shore Capital analysts reckon the probe is in response to “debt-fuelled consolidation by private equity” which in turn resulted in price increases.
“While we will not have an update from the CMA until 2024, and the outcome of the review remains uncertain, we sense that PETS might not be the real focus of the investigation,” the analysts added.
Shore Capital argued that Pets at Home, which brings in a third of its profits from veterinary services, is a “disruptor” to the industry and is instead a “leader in affordable pet care” rather than a perpetrator of sky-high prices.
“Pets at Home has actively sought to innovate within the veterinary sector, exemplified by the Vets4pets care plan—a cost-effective scheme covering routine care and insurance,” the capital markets group said.
“Furthermore, PETS adopts a more conservative investment approach per clinic, which mitigates the pressure to deliver immediate returns, distinguishing it from its corporate-led peers.”
Shore Capital rates Pets at Home a 'buy' and has not made any adjustments to financial forecasts.
Shares in the pet retailer are up a little over 1% on Friday, having opened at slightly above 355p.