Pet at Home Group PLC’s trading update will trigger broker upgrades, continuing a sparkling run that has seen Liberum increase its estimates by 50% since May 2020.


The retailer said in its interim results statement that full-year profit before tax would be at the upper end of the range of forecasts, which runs from GBP128mln to GBP135mln.


Liberum was already at the top of the range with its forecast of GBP135.3mln, which is 50% more than it was forecasting as recently as May 2020, when the UK was coming to terms with the lockdown and decided the solution was to get a new pet.


It is not intending to change its forecasts as a result of the interims but is expecting the broking community to move closer to its forecasts, which is a nicely understated way of blowing its own trumpet.


Its forecasts continue to factor in strong profit growth and a gradually improving EBITDA (underlying earnings) margin from 20.8% in fiscal 2020 to 21.7% in fiscal 2024.


“We expect further strong revenue growth in both Retail and Vet Group, driven by: (i) an acceleration of the UK’s pet care market growth driven by a rise in the pet population; and (ii) ongoing market share gains through the success of the strategic initiatives put in place prior to COVID-19,” the broker said.


The key performance indicators (KPIs) continue to move in the right direction, thanks to self-help initiatives, with the new customer acquisition KPI being especially impressive. An acceleration in underlying market growth from increased pet ownership gives the broker confidence that the impressive growth will continue over the medium term.


The target price of 575p implies a 2022 (calendar year) price/earnings ratio of 25.4, which Liberum says is supported by its discounted cash flow forecasts through to fiscal 2025, using a long-term growth rate of 2.5% and a weighted average cost of capital of 7%.


“The success of the strategic initiatives put in place prior to COVID-19 has enabled a very strong recovery, with PETS emerging as an overall beneficiary and well set to weather the remaining uncertainty ahead. This is reflected in the very strong growth across the board in both Retail and the Vet Group, continued market share gains, further strong growth in VIP customers, Puppy and Kitten Club members, and new vet customers, with more customers shopping across the group’s product and service offer. We expect continued double-digit profit growth and upside risk to forecasts to continue supporting the group’s share price momentum,” the broker said.

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