Pets at Home on course to deliver forecast results, despite CMA setback
Pets at Home, the Cheshire-based pet care group, believes it is on course to deliver expected results for the year to March 28, 2024, in a trading update today.
The Handforth group expects to finish the year in a net cash position, after having returned more than £100m to shareholders via dividends and buybacks, and after having incurred £3m more non-underlying costs than previously expected due to higher restructuring costs, taking the total non-underlying costs for FY24 around £27m.
Looking ahead to financial year 2025, it said it is comfortable with current analyst consensus expectations for group underlying profits before tax. Current analyst consensus is a group underlying pre-tax profit of £144m, with a range of £137m-£150m.
Earlier this month the group saw its shares dip slightly on news that the competition watchdog, the Competition and Markets Authority (CMA) is to launch a formal investigation into the veterinary sector.
Pets at Home said : “We are incredibly disappointed the CMA’s findings today do not fully reflect our unique business model of locally-owned vet practices.
“Whilst our brand is national, our veterinary practices are led by individual entrepreneurial vets who have clinical and operational freedom.”
Today’s update indicated little impact from the CMA announcement, saying fourth quarter trends have been broadly as expected across Retail and Vets, and group underlying profit before tax for FY24 is expected to be £132m, in line with previous guidance.
The group added: “We have now successfully launched our new digital platform to consumers, in line with our commitment for launch this year, offering much improved user experience and functionality across our app and website.
“Our new Stafford DC (distribution centre) continues to function well, supporting all store deliveries, with availability remaining at historically high levels.
“We look forward to transitioning our online sales across through H1 FY25 as previously targeted.”
The group expects to announce its full year results on May 29.
The group’s shares closed trading yesterday at 265.40p per share. In early trading this morning they reached 266.60p per share. The 52 week low is 251p per share, while the year high was 400p per share.
Georgina Pettman, an analyst with investment bank, Panmure Gordon, maintained her ‘Buy’ call on Pets at Home shares today following the update.
She said: “We appreciate the CMA’s decision to progress to a consultation on a potential Market Investigation has negatively impacted the shares (-15% YTD), but we continue to believe PETS is best placed to navigate this as vet practitioners retain operational independence through its JV model.
“The CMA’s decision to consult on a Market Investigation into pet care is expected to conclude April 11, where legal timeframes for investigations typically span 18 months. Albeit PETS has expressed frustration for being misidentified for large parts of the study, it does not form part of the large corporate working group referenced in the most recent CMA report, owing to its differentiated JV model.
“We also reiterate that PETS is not reliant on intragroup referrals, operating first-opinion practices following the sale of its hospital business to Linnaeus Group (Mars) in 2021 (further emphasising PE dynamic in the market).
“Operational independence across its practices enables practitioners to apply localised pricing. We have historically used Hull Stoneferry as an example where consultations are priced below the national average at c£40.”
She added: “Management does not intend to enter the curative market (ie. prosthetics with average transaction values exceeding £3k). But the introduction of dedicated MRI functionality and advanced orthopedics within locations highlights the evolution lifecycle of practices into specialist areas.
“This provides significant scope to increase ATV beyond £110 medium term.”
