Pets at Home PLC (LON:PETS) shares are an even bigger bargain after the adverse reaction to this morning’s interims, according to Panmure Gordon.
The retailer is “dominant, defensive and highly cash generative”, according to the City firm, which has a 271p price target for the stock - which is well above the current price of 215p, down 8% on the day.
The market took fright at slowing like-for-like sales growth in the first half of the financial year and an insipid start to the second half, but Panmure likes the retailer's strong cash flow, which it thinks could be enough to warrant some special dividends if the company cannot find any acquisition opportunities to soak up the cash.
“Our cash flow analysis shows Pets at Home’s intrinsic worth to circa £1.5bn; this equates to a value of 271p per share. This implies that the shares are currently trading at a circa 19% discount to their fundamental worth,” the broker said.
George Salmon, an equity analyst at Hargreaves Lansdown, sounds a note of caution, however, about the threat from online retailers.
“Pets at Home is both slicker and larger than its independent rivals, so is able to roll-out stores and services and hoover up business; however, the danger is that its competition is no longer the dingy high street pet store. Online retailers like Amazon can save customers the trouble of a trip to a retail park, and often offer lower prices,” Salmon said.
“The group still clearly has some attractive characteristics. Strong cash generation and a steady roll-out story mean that there is plenty to go for, but the slowing sales trends are a concern,” Salmon concluded.