Shares in high-flying Pets at Home (PETS) perked up 1.7% to 410p on Thursday after the essential retailer confirmed it continues to benefit from the lockdown pet craze and provided additional colour around its strong third quarter (Q3) and Christmas performance.

The clear Covid winner flagged accelerating momentum behind its retail and veterinary businesses during Q3 and assured investors the resilient UK pet care market remains ‘robust’, with its customer acquisition and retention strategy ‘continuing to generate strong growth across all channels’.

The cat litter, dog food and veterinary services seller has been able to operate as an essential retailer during a pandemic which has seen pet ownership rise as people work from home.

Positive momentum continued during the 12 weeks to 31 December 2020, with group sales growing 18% to £302 million and group like-for-like sales leaping an impressive 17.6%.

Like-for-like retail revenue rose 17.5%, in spite of Covid-related restrictions, with the growth rate accelerating across the festive period. Meanwhile, quarterly like-for-like revenue growth in the veterinary business amounted to 17.8%, accelerating to 21.4% in December amid ‘sustained growth’ in new customer registrations.

GUIDANCE UPGRADE MAINTAINED

Reassuringly, Pets at Home is sticking with the upgraded profit guidance given in a very recent unscheduled trading update (8 Jan), expecting to generate full year underlying pre-tax profit - including the previously announced repayment of business rates relief of £28.9 million - of at least £77 million, an upgrade of around 20% on earlier guidance.

‘Given the length of time elapsed since the most recent update full year guidance (PBT at least £77 million) has been left unchanged, but with these revenue numbers at the upper end of what we had expected, we have raised our full year 2021 PBT forecast by £1 million to £79 million’, said Numis Securities, with a ‘buy’ rating and 530p price target for Pets at Home.

‘This and outer year forecasts continue to look very well underpinned, and we continue to see Pets at Home as a compelling equity story.’

Shore Capital continues to ‘like the Pets investment story that mixes products and services, together with subscriptions business’, though the broker says valuation metrics ‘are starting to look fulsome and we have some more work to do on our outer year forecasts to form a view on the investment story’.

AJ Bell investment director Russ Mould stressed that while Pets at Home faces a competitive threat from non-specialists like the supermarkets and Amazon, under chief executive Peter Pritchard the company has ‘introduced more customers to Pets’ complete pet care offer and signed up lots of loyalty card members.

Mould said, ‘This has helped the company capture a greater share of their overall spend and increase its subscription-led income.

‘The company has coped well with a shift online, ramping up its distribution capacity and the recent sale of its animal hospital business has boosted the balance sheet. This deal suggests the company is narrowing its focus to the online and retail stores and so-called ‘first opinion’ vet practices, though it also acquired an animal health telephone business at the same time in a smaller transaction.’

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Issue Date: 21 Jan 2021