I think these outstanding UK shares are too cheap to miss at current prices. Here’s why I’d buy them for my portfolio next month.
A pet favourite
Trading at Pets At Home (LSE:PETS) has remained rock solid in spite of the ongoing cost-of-living crisis. Yet shares in the FTSE 250 retailer have plummeted on fears over future profits at its veterinary services unit.
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This month the Competition and Markets Authority said it would investigate whether vets are giving pet owners good value for money. The regulator plans to look at issues like pricing transparency and information on whether surgeries are part of a broader group.
Pets At Home’s veterinary division is the fastest-growing part of the business. So it’s perhaps no surprise that investors have been spooked (like-for-like sales here jumped 16.6% during the 20 weeks to 20 July).
However, the company — which last year made 37% of underlying pre-tax profits from its vetcare arm — is far less exposed than specialist vetcare providers like CVS Group. In fact there’s plenty of reason to expect earnings here to continue growing strongly over the next several years.
Riding the wave
Pet ownership in the UK is on a long-term uptrend, meaning that demand for food, toys and other animal-related products should keep rising. Pets At Home is increasing its share of this expanding market too (its total take has improved 600 basis points to 24% in the last five years).
This is thanks in part to the growing popularity of its VIP loyalty scheme, which rose another 4% in the aforementioned 20-week period. Huge investment in e-commerce is also paying off handsomely, and new versions of its app and website are due later this year to support future growth.
Today Pets At Home shares trade on a forward price-to-earnings (P/E) ratio of 16.3 times. They also carry a meaty 3.8% corresponding dividend yield. I think this represents solid value given the retailer’s excellent momentum.
More animal magic
Pharmaceuticals manufacturer Animalcare (LSE:ANCR) is another UK share I’m looking at buying next month.
As the name implies, it specialises in manufacturing drugs for non-humans. This gives it a chance to capitalise on soaring pet adoption rates as well.
I also like Animalcare because it trades at a big discount to FTSE 100 industry peer Dechra Pharmaceuticals. It currently boasts a forward P/E ratio of 12.9 times, far below its bigger rival’s corresponding multiple of 29.7 times.
Revenues and operating profits at the firm dropped 4.1% and 2.8% respectively in the 12 months to June 2022. However, this decline simply reflects a return to pre-pandemic growth rates in the veterinary sector. It’s my opinion that the long-term sales outlook remains robust.
Animalcare is putting its strong balance sheet to work to capitalise on this opportunity too. It’s spending to improve its sales and marketing operations and is hunting for fresh earnings-boosting acquisitions.
Drugs development can be high-risk and Animalcare is no exception. But I still believe the AIM share remains a good UK stock to buy this October.
