Pets at Home aided by ‘humanisation’ trend

Dividend up by 5 per cent Ongoing share buyback programme Mankind’s furry friends are increasingly seen as part of the family rather than as simply pets.  Whatever one’s views on this, it is a definitive trend, and this means that spending on non-discretionary products like pet food and cat litter is here […]

  • Dividend up by 5 per cent
  • Ongoing share buyback programme

Mankind’s furry friends are increasingly seen as part of the family rather than as simply pets.  Whatever one’s views on this, it is a definitive trend, and this means that spending on non-discretionary products like pet food and cat litter is here to stay despite the cost-of-living crisis. This puts pet care company Pets at Home (PETS) in a relatively strong position when it comes to consumer spending.

Chief financial officer Mike Iddon told Investors’ Chronicle that post-pandemic demand has remained resilient, with the business 30 per cent bigger than pre-Covid. He added that volume growth has helped with supplier negotiations as the company tries to keep prices “affordable”.

Strong demand was evident in the top-line performance, which was aided by an 11 per cent increase in subscription plans across the business. Retail revenue was up 7 per cent to £662mn, and vet sales rose by 12 per cent with 1.7mn active practice clients now on the books. The discretionary spending element, however, was apparent in a closer look at sales – food sales were up by 15 per cent, but accessories sales declined by 4 per cent as customers spent less on non-essential dog toys and fashion products.

Profits were hit by higher freight costs and soaring energy bills, with the underlying gross margin falling by 123 basis points to 47.5 per cent, but these headwinds are hardly unique to the company. Freight costs are now coming down, and the combination of volume growth and more customers isn’t hurting when it comes to offsetting cost inflation.

House broker Numis values the shares at 14 times its 2023 earnings forecast and said that Pets at Home “remains a core pick”. Pet trends are certainly still playing in the company’s favour. Buy.

Last IC view: Buy, 313p, 25 May 2022

PETS AT HOME (PETS)      
ORD PRICE: 292p MARKET VALUE: £ 1.43bn
TOUCH: 291-292p 12-MONTH HIGH: 495p LOW: 255p
DIVIDEND YIELD: 4.10% PE RATIO: 13
NET ASSET VALUE: 208p* NET DEBT: 37%

Half-year to 13 Oct

Turnover (£mn) Pre-tax profit (£mn) Earnings per share (p)

Dividend per share (p)

2021 (restated) 678 65.7 11.1 4.30
2022 727 53.4 8.7 4.50
% change +7 -19 -22 +5
Ex-div: 01 Dec      
Payment: 06 Jan      
*includes intangible assets of £989mn, or 202p a share

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