Pet Valu Holdings Ltd (PET-T) “operates in a defensive industry, has a loyal customer base and is gaining market share, making it an investor favorite,” according to Stifel analyst Martin Landry.
In a report titled Do not surrender this PET, he came off research restriction following the Markham, Ont.-based secondary offering of 5.175 million shares, reiterating a “buy” recommendation and touting its potential addition to the S&P TSX Composite Index.
“Despite Pet Valu’s share near an all-time high, the offering was more than 2 times oversubscribed, an indication of the strong investor demand for the company,” said Mr. Landry.
“This secondary offering increases the company’s float-adjusted market capitalization. According to our calculations, Pet Valu could potentially be added if its share price would exceed $40. The index revision is scheduled to occur on December 2nd with the reference date to meet the criteria being the 10 trading sessions prior to Friday, December 2, 2022.”
To make the cut, Pet Valu will need to reach a market cap criteria of 0.04 per cent of the index weight and reach a liquidity criteria of 50 per cent of its total float of adjusted shares traded in the last year.
“We analyzed the 11 companies which were added to the S&P/TSX Composite index this year,” said Mr. Landry. “Our analysis suggests that the daily average trading volume of the companies added increased by 100 per cent over the next 10 trading sessions following the announcement vs. their previous 6-month average. Assuming, a similar outcome for PET, we could see an incremental demand for 1.1-1.2 million shares following an index inclusion.”
He maintained a $42 target for Pet Valu shares. The current average is $44.67.
“The equity offering increases PET’s float by 19 per cent, which we view as positive given it improves liquidity for shareholders, something that was often flagged by investors,” said Mr. Landry. “With an increased likelihood to be added to the S&P/TSX in the coming year, we believe Pet Valu will attract a broader shareholder base, a positive for the shares.”