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Stock pick for 2022: Pets at Home
Pets at Home (PETS) is in an excellent position to take advantage of the opportunities created by an expanded pet population.
It’s one of those stocks easily dismissed by some investors given that the share price has already been a strong performer. We view it as a great business with plenty of room to continue growing earnings and where the valuation is still reasonable.
Unlike some other activities which gained popularity during lockdown, taking in a new pet is a long-term commitment for most people, not a fad.
There are three main ways Pets at Home will benefit from this market opportunity. First through people buying food, treats, bedding and toys for their animals; second as people look to keep their furry friends tidy at its in-store grooming salons; and third by offering veterinary services.
The veterinary business, under the Vets4Pets banner, is high margin and includes directly owned practices, both inside Pets at Home stores and in standalone locations, as well as those operated through a recently launched partnership model.
By agreeing joint ventures with vets, Pets at Home can grow this part of the group rapidly without incurring significant costs.
The firm’s VIP, Puppy and Kitten Club memberships are a smart way of securing customer loyalty. Effectively you gain access to things like in-store discounts and advice, a network of other members who you can call on if your pet goes missing and a donation to an animal charity every time you shop.
These initiatives should help Pets at Home to protect and grow market share, which stood at 23% in the most recent financial year according to the company, by warding off non-specialist rivals like the supermarkets, which are probably the clearest competitive threat.
The company has done a decent job of mitigating supply chain issues, helped by the fact its product range is sourced in the UK and is not perishableor seasonal.
The man behind Pets at Home’s successful strategy, Peter Pritchard, is set to leave in summer 2022. He hands over a business in great shape.
The company is forecast to report £135 million pre-tax profit for the year to March 2022, rising to £152 million in 2023 and £168 million in 2024, according to analyst consensus estimatespublished by Refinitiv.