Solid third quarter trading and another annual profit guidance upgrade from Pets at Home (PETS) went down well with investors on Wednesday following a turbulent start to 2022.
Shares in the pets equipment and veterinary services supplier had fallen about 8.5% since the start of the year with investors reluctant to back growth stocks so far, but the stock rallied as much as 5% in early deals before easing to a 2.5% gain at 428.9p by mid-morning.
Amid continued momentum into the final quarter, Pets now says that it sees underlying pre-tax profit for the year to 31 March 2022 rising to at least £140 million, comtably ahead of past guidance.
Consensus forecasts had been pitched between £134 million to £137 million, according to analysts’ estimates.
PETS MARKET ‘REMAINS ROBUST’
One of Shares’ stock picks for 2022, Pets at Home delivered solid trading in the 12 weeks to 30 December 2021 with group revenues up 5.8% to £319.4 million during the quarter.
Retail sales bounded 9.8% higher overall, with one-year like-for-like sales growth of 9% and two-year like-for-like growth of 28.4%, supported by the ongoing ‘pet humanisation’ trend and with ‘premiumisation supporting record sell-through of seasonal ranges’.
Meanwhile, the higher margin vets division delivered encouraging 4% like-for-like growth year-on-year, with like-for-likes 23.3% ahead on a two-year basis.
The FTSE 250 retailer stressed the UK pet care market, which received a major boost from Covid lockdowns, ‘remains robust’, with strong continued growth in new pet owner customers and ‘prevailing customer themes of long-term pet ownership, humanisation and premiumisation, creating a sustainable tailwind for growth across our business.’
On track to report a record year of sales and profit growth, Pets at Home also insisted the search for CEO Peter Pritchard’s successor is ‘well-advanced’.
ANALYST’S TAKE
Shore Capital commented: ‘The pet space remains hot with plenty of private equity interest and can count on the structural pets population’s expansion to support future growth, unlike other Covid-winners.’
The broker pointed out that Pets at Home remains ‘the number one dominant UK player’ in a robust and resilient sector. ‘The business has built some attractive assets (i.e., loyalty club, own labels and the store locations), which set them apart from the competition, all underpinned by data and digital capability.’
AJ Bell investment director Russ Mould said: ‘Pets at Home is about to get a new master and they’re inheriting a stock market animal with a glossy coat, healthy teeth and plenty of pep.
‘As the market leader in a nation of animal lovers its proposition looks compelling, particularly given many Britons added a furry or feathered friend to their household in lockdown.
‘This larger pet population needs feeding, cleaning and caring for when sick, and Pets at Home has got all of those angles covered thanks to its retail, grooming and veterinary arms.’
Mould continued: ‘Supermarkets and other non-specialists represent a competitive threat, but it is one that Pets at Home is facing down effectively with initiatives like its VIP Loyalty scheme, which saw a 13% increase in numbers in the 12 weeks to 30 December, supporting this fight.
‘Like most companies Pets at Home is not immune from supply chain issues but it is doing a decent job of managing these, benefiting from having a product range largely sourced in the UK which is neither perishable nor seasonal.
‘Whoever takes over from incumbent Peter Pritchard will have a hard act to follow but his legacy at least means they have a fair chance of success.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
