Pets at Home (LSE: PETS) is one of the many companies to have joined the market recently that has seen its share price really struggle.
There seems to be a decent business here but the company, its private equity backers and its advisors all just got a little bit greedy when they set the 245p offer price back in March. And it certainly didn’t help matters that a number of directors ducked out by selling shares within a fortnight of it joining the market. That sequence of events has dogged the shares ever since, and they hit a low of 170p yesterday, representing a 30% drop in just over four months.
First-quarter fillip
However, this morning Pets at Home released a good-looking trading statement, which showed like-for-like sales growth of 4.1% and total revenue growth of 10.4% for the last three months. In early trading, Pets at Home shares leapt nearly 8% to 183p – hopefully this isn’t just a dead cat bounce.
Growth seems to be across the business, with its VIP Club loyalty scheme reaching 2.4 million members, up from two million earlier this year, and now accounting for 57% of store revenues. Its veterinary practices and Groom Room parlours, although a relatively small part of the company in revenue terms, are growing quickly.
Pets at Home is still keen on expanding its store pawprint, with 25 stores planned this financial year, of which 10 have already been opened. The company has also been investing in its website and a national TV advertising campaign.
Fairly priced for now
There wasn’t any news on profitability in this release, but broker forecasts are for earnings per share of 13.6p this year. That puts the shares on a forward price-earnings multiple of around 13 to 14 times. A maiden dividend of around 4.8p could be paid as well, representing a yield of about 2.5%.
All in all, I’d say this business looks fairly priced for now, although it often pays to be cautious when private equity backed firms like this come to the market. It’s useful to see a few periods of trading to make sure the company wasn’t overly preened before being put on show.
