Pet Valu Holdings Ltd T.PET

Alternate Symbol(s): PTVLF

Consumer Cyclical Specialty Retail

Pet Valu Holdings Ltd. is a Canadian specialty retailer of pet food and pet-related supplies. The Company has over 800 corporate-owned or franchised locations across the country. Through its neighborhood stores and digital platform, the Company offers more than 9,000 competitively priced products, including an assortment of premium, super premium and holistic brands. Its family of stores consists of Pet Valu, Bosley’s by Pet Valu, Total Pet and Tisol Pet Nutrition & Supply. Its product categories include puppy essentials, dog food, dog treats, dog toys, dog collars, leashes & harnesses, dog carriers & travel, kitten essentials, cat food, cat litter & litter boxes, cat bowls & feeding, small pet food, treats & hay and aquariums, kits & tanks. Its brands include Performatrin Ultra, ACANA, Royal Canin, ORIJEN, Go! Solutions, Performatrin Prime, Hill's Science Diet, Big Country Raw, Open Farm and Stella & Chewy’s, Purina Proplan, Purina Pro Plan, and Weruva.

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Pet Valu Holdings Ltd

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Post by retiredcfon Mar 29, 2023 3:29pm

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Post# 35367611

TD Initiates Coverage

Pet Valu Holdings Ltd.

(PET-T) C$35.80

Initiating Coverage with a BUY Rating, $45 Target Event

We are initiating coverage on Pet Valu (PET-T) with a BUY rating and $45.00 target price, representing an ~27% total return.

We see this as a very similar story to Dollarama (DOL-T, BUY-rated) coming out of its IPO with strong SSSG, plenty of white space to add new stores, and very high returns on investment. One difference is that PET is using an asset-light model, with 70% of stores being franchised and all net new store growth expected to come from this high-return model.
Industry growth has been very attractive, recording a 6% CAGR over the 20 years pre-COVID-19 and jumping to 11% over the past three years on a COVID-19- driven bump in pet ownership and growing premiumization. People increasingly view their pets as family members and this, plus the fact that two-thirds of sales are non-discretionary, make this industry impressively recession-resistant — going back to the 1980s, there has not been a single down year (sales growth hit peaks during recessions/shocks).
Company-specific growth opportunities, which should lift revenues even higher, include: 1) room for ~500 additional new-to-industry stores, representing an ~5.7% CAGR over the next three years at the current 40-50/year pace; 2) leveraging its growing loyalty program using its emerging expertise in data analytics to better influence customer behaviour; 3) expanding proprietary brands penetration, particularly within hardlines and Chico's Quebec network; and 4) bringing self-distribution to Chico.
PET is investing heavily in supply-chain infrastructure, including the construction of three large-scale semi-automated DCs that will double capacity (supporting growth for the next decade) and IT systems (contributing to meaningful long-term operating leverage).

TD Investment Conclusion

PET is poised to deliver strong long-term organic revenue growth though short- term GM% (currency, duty recoveries) and interest rate headwinds are seen pushing EPS lower through Q2 or Q3. For this reason, P/E valuation — currently below its ~24x average since the IPO and Dollarama's ~24x — probably deserves to remain below-average for now. Considering the liquidity, we recommend using the shares' current weakness to build positions before adjusted EPS returns to high- teens growth by Q4/23E and valuation recovers (as investors price in 18%/17% growth in 2024E/2025E).