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Pets at Home's new boss has big shoes to fill but shares are cheap, say analysts

Published: 11:02 25 May 2022 BST

Pets at Home Group PLC -

Analysts said new Pets at Home Group PLC (LSE:PETS) boss Lyssa McGowan has "big shoes to fill" after the retailer again impressed with the healthy sheen of its full-year numbers and its tail-wagging confidence for the current year. 

Joining from Sky, where she was chief consumer officer, McGowan starts in the job on 1 June.

For the year to the end of March, the retailer and pet services provider reported an underlying profit before tax of £144.7mln for the 53-week period to 31 March, representing 61.1% growth on the prior year, things might get a bit trickier as we enter the dog days of summer, said analyst Gemma Boothroyd at Freetrade.

"Red hot inflation and the growing cost of living mean the UK could continue to feel the heat. It’s not to say we’re about to stop feeding Fido, but we might stop buying matching collars and leashes in a range of styles and colours," she said.

Pets' Retail wing recorded 15.8% like-for-like growth in the past year and at its Vet Group arm were up 17.1%, while subscriptions jumped 23% to £120mln, with Puppy and Kitten clubs up 36% and VIPs members growing 18%.

A final dividend per share of 7.5p took the full-year dividend to 11.8p, an increase of 48%, with management also intending to launch a 12 month share buyback programme of up to £50mln.

Its ability to navigate the rest of the year really depends on how much it can raise prices, especially for its grooming and veterinary services, said Boothroyd.

"It’s much harder to shop around for those services than it is for products, like an established kibble food brand. Pet owners also tend to simply pay the price on offer when it comes to keeping their pets healthy."

Management's guidance for 2023 was for group underlying PBT in line with the current analyst consensus of £151mln, implying 4.4% growth.

The headline figures are "a very small beat" to the analyst consensus, said broker Peel Hunt, helped by a strong fourth quarter.

"It is pleasing that management plans a share buyback of £50m, and the dividend is largely in line as well," the Peel analysts added.

"There are cost headwinds, so we are not changing our headline numbers, but the market should at least be reassured from a much-reduced multiple."

At Liberum analysts said they "continue to believe risks to Pets at Home should be relatively low in a downturn".

Having recently reduced forecasts, Liberum said the shares are supported by a "very healthy balance sheet, 7.2% free cash flow yield, 3.8% dividend yield and a return to double-digit profit growth [expected] in FY24E".

The shares, it noted, trade on around 13 times current year earnings, which represents around a 50% de-rating from the highs of September 2021.

 

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