UK markets rally, vet industry probe hurts CVS and Pets at Home shares, Domino’s sales growth slows and Persimmon maintains dividend as profit halves

“European markets opened with a spring in their step, with the FTSE 100 up 0.9% and the DAX rising 0.3%,” says Russ Mould, Investment Director at AJ Bell.

“The blue-chip UK index was led by a rally in financials including a 3.1% gain from Prudential and a 2% rise from Standard Chartered. Interestingly, nearly all sectors were in positive territory, implying that investors were feeling upbeat across the board which is a healthy situation to have in markets.

“Investor sentiment was boosted by slowing UK wage growth which raises the chances of the Bank of England cutting interest rates sooner rather than later. However, imminent US inflation data could easily turn markets on their head if it looks like the cost-of-living pressures are here to stay for a while longer, and that the Fed won’t be cutting rates in the near term.

“Bitcoin’s rally lost steam and the cryptocurrency pulled back after hitting a new record high yesterday, perhaps indicating that some investors are banking profits while the going is good.”

Pets at Home / CVS Group

“Pet owners are happy to splash the cash on their beloved furry friends, yet the competition watchdog is worried that they’re paying far too much for medicines or prescriptions.

“These concerns have got so serious that the CMA is now launching a formal investigation. The implication is that veterinarians have been exploiting their customer base either through overcharging or not giving enough information so customers can choose from a range of treatments priced at different levels. The watchdog also implies that some vet practices are too dominant in parts of the country and that is hurting competition.

“The biggest vet group on the UK stock market is CVS and understandably its share price has crashed on the news that the watchdog is stepping up its probe. Pets at Home is also exposed, though its vet practices are only one part of a broader group which includes selling pet food and accessories.

“The vet industry has been struggling with a lack of qualified workers, which has led to existing staff having to work longer hours, the recruitment of more staff from overseas or locums which has pushed up costs, or fewer appointments which has impacted takings for certain vet centres. This shake-up in the sector might have led some vets to push hard on prices to make up for any disruption to how their practices are run.

“If the CMA finds the industry guilty of poor practices around pricing and disclosure, vet companies face a significant downgrade to earnings forecasts. Worst case scenario, it might even render some smaller vet practices as far less economical and potentially lead to closures.”

Domino's Pizza

“While the consumer backdrop is not deteriorating at the rate it was, it is still a big ask for households to spend £20 on an individual pizza and this is evident in the slowdown in fourth quarter sales growth at Domino’s Pizza.

“There may be some market disquiet over the acquisition of Shorecal – the leading Irish franchisee for the Domino’s brand. The issue of shares to fund the deal will result in some dilution and in the short term it will be taking on a number of stores – a move at odds with its stated asset-light business model. Investors will hope the exit route of finding willing franchisees to take the stores on is a smooth one.

“There were undoubtedly positives in Domino’s latest results. It seems to have left the damaging battles with existing franchisees behind it for now and the company has put in place some ambitious medium-term targets.

“Costs are heading in the right direction and the company hopes to reduce them further by upgrading and increasing the use of technology in its infrastructure and supply chain.

“However, plans to increase the number of sites raise the question of saturation point in a UK market which is well served by both Domino’s and rival pizza and broader takeaway options. The danger, which has spooked the market before, is that new stores cannibalise the sales of existing sites.”

Persimmon

“There may be some relief that Persimmon has maintained its dividend at the previous year’s level but also concern the housebuilder has merely kicked a difficult decision down the road given the uncertain market backdrop it continues to face.

“A relatively strong balance sheet has enabled Persimmon to keep the payout unchanged but it’s not the typical response from a company which has just seen its annual profits halve.

“Cash is going out of the business at some pace too and the level of cash in the bank has halved year-on-year. Management hope to keep the dividend unchanged again in 2024 but also continue to expect subdued market conditions despite a pivot in UK interest rates looking plausible in the near term. Not helping is political instability with the general election expected in the latter part of this year which is anticipated to have a dampening effect on sales.

“Persimmon’s hope is that in the long term pent-up demand remains and that as mortgages become more affordable and some of the uncertainty fades, it can see a return to happier times.”

These articles are for information purposes only and are not a personal recommendation or advice.