‘Languishing share price’: CVS under pressure to turn around performance from activist investor
One of the UK’s largest veterinary groups is facing increased pressure from an activist hedge fund to improve its performance after competition regulators concluded a probe into high prices in the sector.
Canada-based Converium Capital, which holds a two per cent stake in the FTSE 250 group, threatened to rally shareholders to nominate directors to the board if CVS did not comply with its demands set out in a letter, according to people familiar with the matter.
In the letter to CVS’s board, which was seen by the Financial Times, Converium called on the group to launch a £100m share buyback programme, in order to “capitalise on its currently languishing share price”.
CVS’s market value stood at £785m at market close on Tuesday, with its share price tumbling 11.4 per cent since January.
Converium said a £100m share buyback programme would leave room for CVS to pursue up to £45m worth of acquisitions and remain within its debt targets, arguing repurchasing the “materially undervalued stock” is the “highest-return use of capital available”.
CMA findings
The intervention from the activist investor comes after the UK’s Competition and Markets Authority unveiled a package of reforms in March imposed on five large petcare groups, including Pets at Home and CVS, citing “weak competition and high prices”.
The new rules include enhanced transparency standards and a cap on prescription charges on veterinary medicines and follow an investigation into the companies which began in September 2023.
Together, the five groups control 60 per cent of the £6.3bn sector.
Pet ownership rocketed in the last six years, following the Covid ‘puppy and kitty boom’, and coincided with large operations, including those owned by private equity firms, snapping up individual practices.
The regulator found that a lack of information made it difficult for pet owners to make informed decisions, which led to soaring prices, with the CMA finding prices rose by 63 per cent in between 2016 and 2023, significantly above inflation.
CVS halted UK acquisitions last year and shifted its focus into expanding in Australia following the probe.
Converium’s disappointment
Converium’s managing partner Michael Rapps, expressed his disappointment in CVS in the letter, noting that the group’s share price has failed to improve following the conclusion of the watchdog’s investigation and the company’s move into the FTSE 250 index earlier this year.
Converium said: “The market is valuing CVS Group as if it were a single-location clinic rather than a multinational company with nearly 500 locations and a high-margin diagnostic lab business.”
CVS Group said: “The board of CVS continues to engage with all its shareholders and are proactively listening to their feedback, including matters such as capital allocation.
“The board is considering this feedback in the context of its existing capital allocation priorities for the business including investing for organic growth, executing against the company’s acquisition pipeline and returning excess capital where appropriate.”