It's a good time to be in the puppy and kitten business. Growing at a rate of 3.5 per cent since 2012 to reach a value of £6.1bn last year, the UK pet sector is significantly outperforming the general retail market. In March 2014 investors gained access to this growth when retailer Pets at Home (PETS) listed its equity on the London Stock Exchange at an IPO price of 245p a share. Those who bought into the story have been rewarded with an 11 per cent share price gain and an inaugural final dividend of 5.4p a share - about 40 per cent of profits.
The payout follows a robust set of annual figures. Last year, the expansion of the group's VIP Club, plus grooming, vet services and advanced nutrition offerings all contributed to like-for-like sales growth of 4.2 per cent. Gross margins increased by 40 basis points to 54.2 per cent, while underlying cash profits (which exclude £1.7m in share-based payments) rose nearly 10 per cent to £121m.
Despite high levels of cash conversion - 77 per cent last year - chief executive Nick Wood said deleveraging "remains the priority". Only when net debt gets to roughly one times cash profits will the group consider handing back spare cash to shareholders beyond the scheduled dividend.
That's partly because the group is ploughing capital into growing its services business, namely in-store veterinary practices and 'Groom Rooms'. Mr Wood hopes this will also spark an increase in like-for-like general merchandise sales, particularly as VIP members will get special discounts and reward programmes. The advanced nutrition division will also expand. New brands will be stocked and new product lines added to the company's own-brand and private-label ranges. Mr Wood said this should help attract new customers - customers who are "increasingly engaged" with pets living "healthy lives with quality products".
Analysts at Merrill Lynch expect adjusted EPS of 15.6p for the current financial year, up from 13.6p in the period to March 2015.
| PETS AT HOME (PETS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 273p | MARKET VALUE: | £1.37bn | |
| TOUCH: | 272.6-273.4p | 12-MONTH HIGH: | 285p | LOW: 162p |
| DIVIDEND YIELD: | 2.0% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 159p* | NET DEBT: | 24% | |
| Year to 26 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 518 | 28.6 | na | na |
| 2012 | 544 | 25.6 | na | na |
| 2013 | 598 | 26.6 | na | na |
| 2014 | 665 | 22.5 | -13.8 | nil |
| 2015 | 729 | 87.0 | 14.4 | 5.4 |
| % change | +10 | +286 | - | - |
Ex-div: 13 Aug Payment: 14 Sep *Includes intangible assets of £956m, or 191p a share | ||||
