Pets at Home (PETS) soundly beat expectations in the year to March 2019, prompting its shares to jump following the results announcement. In recent months, the group has been working to find an edge in the crowded veterinary market, cutting prices and introducing discounted subscription services for repeat customers. Management admits to being surprised by its success, saying the retail business “returned to profit growth faster than anticipated”.
Pre-tax profits were more than 6 per cent ahead of expectations in the year, with like-for-like growth of 5.1 per cent in the retail business. However, this came at a cost. The group has lowered prices – they are now within 5 per cent of the most competitive online peer – but has been forced to cannibalise profitability in the process. The underlying gross margin contracted 102 basis points to 50.7 per cent, while exceptional charges of £40.4m related to veterinary practice buyouts meant statutory pre-tax profit fell 38 per cent.
Management sounded upbeat about the future, with sales expected to outpace both the retail and veterinary markets. However, the group is changing joint-venture fees, and the resulting financial impact will lead underlying profits to fall slightly year on year. Profit and cash flow growth isn’t expected until 2021.
Broker Numis is expecting adjusted pre-tax profits of £86m in 2020 giving EPS of 13.6p, down from £89.7m and 13.9p in 2019.
| PETS AT HOME (PETS) | ||||
| ORD PRICE: | 160p | MARKET VALUE: | £800m | |
| TOUCH: | 159.1-160p | 12-MONTH HIGH: | 168p | LOW: 102p |
| DIVIDEND YIELD: | 4.7% | PE RATIO: | 26 | |
| NET ASSET VALUE: | 181p* | NET DEBT: | 15% | |
| Year to 28 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015 | 729 | 87.0 | 14.4 | 5.4 |
| 2016 | 793 | 92.1 | 14.6 | 7.5 |
| 2017 | 834 | 95.4 | 15.1 | 7.5 |
| 2018 | 899 | 79.6 | 12.6 | 7.5 |
| 2019 | 961 | 49.6 | 6.1 | 7.5 |
| % change | +7 | -38 | -52 | |
| Ex-div: | 13 Jun | |||
| Payment: | 16 Jul | |||
| *Includes intangible assets of £1bn, or 200p a share | ||||
