Pets at Home share price soars as watchdog rumours spark interest from private equity

Shares in Pets at Home surged by over 14% this morning amid growing signs that the UK's competition watchdog is leaning towards a favourable outcome for the industry.

Additionally, there's speculation that private equity firm BC Partners is gearing up for a bid, as reported by City AM.

According to FT Financial News, a series of 'bidcos' with 'pug' in their names were registered on 24 February, fuelling rumours they might be set up to make an offer for the pet retailer.

The Cheshire company's share price has recently been under strain due to an ongoing Competition and Markets Authority (CMA) investigation into the veterinary sector, which has raised investor concerns about potential stringent regulations.

However, analysts at Jeffries have indicated that any changes are "likely to be largely limited to improved transparency and regulation", boosting confidence that price controls will not be enforced.

The CMA's inquiry, which has garnered over 56,000 public and industry responses, is scrutinising the UK vet industry following worries that pet owners may not be receiving value for money.

This includes issues such as being overcharged for medications and concerns that consolidation by larger practices could diminish market competition.

For Pets at Home, the outcome of this investigation is crucial, as its recent growth has been propelled by its veterinary services, which saw a like-for-like increase of 19.9% in the 12 weeks leading up to 2 January, while retail revenue dipped by 2.8% during the same timeframe.

The latest papers published on the probe by the CMA, dated February 6, raised concerns about the limited choice of services for customers and noted that the cost of veterinary services has increased more rapidly than inflation.

However, analysts at Jefferies have pointed out that profit margins in the sector remain "largely unchanged," and they believe it is improbable that the CMA will introduce widespread pricing control measures.

"Our expert is optimistic about the outlook for the sector, believing that the trading headwinds are 'transient' and that, once the overhang of the CMA investigation is cleared, the industry will have much greater clarity on how it can progress and be profitable," stated Jefferies.

The animal care market is substantial and expanding; in 2022, UK consumers spent nearly £10bn on pet-related products, which is almost double the amount from a decade ago.