Pet Valu Holdings Ltd T.PET

RE:Top Pick

[Possibleidiot01]

TOP PICK

Pet Valu Holdings(PET-T)

28/03/2024

 

Canada's largest retailer in the space. Industry growth driven by pet adoption, and higher spending per pet. Really strong 22% EBITDA margins. Healthy free cashflow, reinvested in opening new stores and distribution centres. Consistently beats consensus. 

Same-store sales growth has slowed since pandemic moves. Stock's corrected to 19x earnings, really good buy considering earnings quality and plans for growth. Yield is 1.4%.

(Analysts’ price target is $37.35)

specialty stores

 

$31.650

Owned

PET VALU (PET TSX)

Pet Valu is Canada’s largest specialty retailer of pet supplies with over 780 mostly franchised stores and 18 per cent share of the market. Industry growth has been driven by increased pet adoption rates and higher spending per pet because of the humanization and premiumization of pets. Pet Valu generates 22 per cent EBITDA (earnings before interest, taxes, depreciation, and amortization) margins and strong free cash flow which they have been reinvesting into opening new stores and raising the dividend. Pet Valu has consistently beaten consensus and delivered double-digit organic growth since its IPO (initial public offer) in 2021. However, SSS (same-store sales) growth has slowed down after the post-pandemic boom and the stock has corrected from $42 to $32 creating a good buying opportunity.

The company is spending on three new state-of-the-art distribution centers in the Greater Toronto Area, Calgary, and Vancouver, which should help improve margins, and plan on opening 40 to 50 new stores per year, so strong organic growth. The stock is now trading at around 19 times 2024 price-to-earnings (versus 30 times before) which is very attractive considering double-digit EPS (earnings per share) growth should resume in 2025.