Company Review

Pets at Home Group Plc is a United Kingdom-based company. The group is a retailer of pet products, pet food, and other pet-related services. The company markets its products for cats, dogs, fish, birds, and other pets through pet retail stores. As on March 17, 2014, shares of the group got admitted to the main market of the London Stock Exchange for trading. Schroder Investment Management Ltd., Merian Global Investors (UK) Ltd. and Norges Bank Investment Management are the major institutional investors in the group. (Source: Thomson Reuters).

Trading Update: Q1 FY20

Source: Company filing

As on August 02, 2019, the group reported its trading update for the quarter ended 18 July 2019. In the year under consideration, the group’s revenue grew by 9.9% to £303.4m, driven by the group’s retail revenue which recorded a growth of 8.7% and stood at £266.4m, including omnichannel revenue which surged by 36% to £26.0m and Vet Group revenue increased 18.8% to £37.0m. On a like-for-like basis, the group’s revenue reported a growth of 8.0%, led by retail’s like-for-like sales up by 8.2% on a YoY basis and Vet Group’s like-for-like basis revenue up by 6.2%.

For the period under review, the group expects an underlying profit for the year, before IFRS impacts, to be marginally above the market expectations, driven by good transaction and cash growth in Retail, primarily in food and omnichannel where the witnessed decent growth. Also, during the year, Vet Group's performance was broadly in line with the group's plan.

Stock Performance
 
Daily Price Chart (as on October 10, 2019), before the market close. (Source: Thomson Reuters).

At the time of writing (before the market close, at 02:33 PM GMT), shares of the PETS were quoting at GBX 209.6 and trading flat against the yesterday’s close. In the year-ago period, shares of the PETS have registered a 52w high of GBX 242.40 and a 52w low of GBX 101.95, respectively. On a YoY basis, shares of the group delivered a very decent return of 72.6% and up 81% on a YTD basis.

Conclusion
The group's performance during the first quarter of FY20 was decent, driven by decent performance recorded in its retail business and increased number of VIP sales. Also, the stock has handed a decent return to its shareholders over the YoY basis. Also, the group is offering a decent dividend yield of 3.58%.

However, since the last one, we spotted some increased short position in the stock, maybe it was because investors want to book some of the profit in the share, which has sent stock below its short -term support levels of 30-day and 50-day simple moving and exponential moving average prices. Also, the 14-day Relative Strength Index in the stock tending towards the lower base, which reflects sell-off in this counter. Also, the stock was hovering near the lower Bollinger Band ®, which reflects some more correction could be witnessed in the near term.

However, fundamentally, the company is decent with sales growth, EBITDA and Net Margins above the industry median. Also, the inventory turnover ratio of the company was at approximately 7x, where the average industry inventory turnover ratio stood near 3.5x, an important indicator for retail business.

Therefore, based on the above rationale and considering the current unfavourable trend in the stock, we have given a “Watch” recommendation at the current price of GBX 209.60 (as on October 10, 2019).

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