Motley Fool 31st May31 May 2017 10:09
2 growth stories for your retirement portfolio
Pets at Home (LSE: PETS) the UK’s leading specialist retailer of pet food, accessories and veterinary and grooming services, reported a 7.2% increase in revenue and a 3.2% increase in profit before tax for FY17.
The company is rolling out various vet-related formats including Pets at Home, Vets4Pets, The Groom Room and Barkers. This year, Pets is planning to roll out a further 10 superstores, 40-50 vet practices and the same number of grooming salons, for predicted totals of 444, of 478-488 and of 340-350 respectively. This portfolio is the largest in the country and bigger than the next five companies combined. Therefore, Pets commands a competitive monopoly.
The company aims to put “pets before profits,” a principle that should protect quality of service. A good reputation pays dividends itself and with a 9% net income margin, the company is soundly profitable.
The future looks interesting for this mid-cap group, with the £47.1m profit generated at joint ventures in 2017 projected to near-double to £80m in the coming years.**
Merchandise like-for-like sales were weak last year at 0.8%, but revenues from services increased 7.8% indicating the more profitable grooming and veterinary businesses could generate the best return on investment over the next few years.
Cash generated from operations was nearly identical to last year at £110.9m, while a higher level of free cash flow facilitated more acquisitions, despite an 11% increase in capital expenditure. Net debt fell from £161m to £151m, so the company looks financially secure enough to maintain expansion.
The company has increased EPS at a compound annual growth rate of 6.04% over the last four years. Valued at a PE of 10.7, the shares seem to represent growth at a reasonable price. A 4.6% yield comfortably covered by free-cash-flow gives Pets at Home a shot at beating the market, in my opinion.
*The pet market is expected to expand 4.5% over the next five years, so the macro situation seems to favour Pets.
http://www.fool.co.uk/investing/2017/05/31/2-growth-stories-for-your-retirement-portfolio/