Shore Capital has highlighted a growing divergence within Pets at Home Group PLC (LSE:PETS), the UK's largest specialist pet retailer, arguing that the higher-margin veterinary division is being undervalued by a market focused on weakness in the retail business.
The broker's assessment came as Pets at Home reported full-year results showing group consumer revenue up 1% to £1.98 billion but adjusted pre-tax profit down roughly 30% to £93 million.
The split between the two sides of the business was stark.
Retail revenue declined 1% and adjusted pre-tax profit fell 58%, while the vet group delivered 5% revenue growth and a 10% increase in adjusted pre-tax profit.
Shore noted some encouraging signs of a retail turnaround in the second half, following a programme of new product launches, significant price investment and improved store execution that produced an acceleration in volume growth and a return to positive sales.
The veterinary business continued to expand, with eight new practices opened during the year and a similar pace planned for the current financial year, alongside 17 site extensions completed and a comparable number in the pipeline.
Management guided to a return to profit growth in the current year, with adjusted pre-tax profit of £98 million, in line with market consensus, supported by sales growth in both divisions and profit progress across the group.
Shore also flagged the planned launch of a branded pet insurance proposition, targeting a share of the roughly £2 billion UK pet insurance market, as a potentially significant opportunity that leverages the company's existing customer base and brand.
Start-up costs for the insurance business are expected to increase in the current year but are already accounted for within the profit guidance.
The shares are currently trading on a calendar year 2026 EV/sales multiple of 0.8 times, EV/EBITDA of 5.7 times and a price-to-earnings ratio of 12 times, which Shore Capital described as average for the retail sector but argued does not reflect the value of the faster-growing, higher-margin vet business.
The shares were up 6% at 195.8p.